rhipe Limited 

RHP Details

Update on a Non-Binding Proposal: rhipe Limited (ASX: RHP) is engaged in the wholesale of subscription software licenses to various technology service provider resellers. It provides cloud licensing and solutions for its software vendors across the Asia Pacific region. RHP has informed regarding a non-binding and conditional proposal from Crayon Group Holding ASA (Crayon) to acquire 100% shares of RHP on 1 July 2021. Crayon is likely to acquire 100% shares of RHP through a scheme of arrangement for $2.50 per share (excluding dividends after the date of proposal). The condition for proposal includes the completion of due diligence and negotiation of a Scheme Implementation deed, approval from shareholders, FFIRB approval and regulatory approvals. At the same time, the company has suggested that the proposal is indicative in nature and there is no certainty that the proposal may take place. Henceforth, investors are advised not to take any action.     

Notice on an Initial Substantial Holder: MA Financial Group Limited (MAF) has become an initial substantial holder in Rhipe Limited by holding 5.12% of voting power on 16 June 2021. 

Financial Highlights: RHP has registered an increase in sales to $273.1mn in Q3 YTD FY21 against $236.5mn in Q3 YTD FY20. The company has posted an increase in operating profit to $13.2mn in Q3 YTD FY21 against $9.7mn in Q3 YTD FY20. During 1HFY21, the company has posted a cash balance of $57.51mn as on 31 December 2020, down from $60.92mn as on 30 June 2020. RHP has posted an increase in non-current liabilities to $6.05mn as on 31 December 2020 against $4.65mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign exchange prices. Therefore, any adverse change in foreign exchange prices may impact the financials of the company. In addition, the company is exposed to technology risks. Therefore, obsolete technology may impact the business of the company.  

Outlook: RHP expects its operating profit to be more than $18mn for FY21 considering a robust growth in Q3FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of RHP gave a return of ~38.67% in the last one month and a return of ~46.35% in the last three months. The current market capitalisation of RHP stands at ~$336.64mn as of 01 July 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.545-~$2.53. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low double-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company has seen an increase in sales and operating profit in Q3 YTD FY21. For this purpose, we have taken peers Appen Ltd (ASX: APX), TechnologyOne Ltd (ASX: TNE), Livetiles Ltd (ASX: LVT) to name a few. Considering the company has witnessed a decline in cash balance and an increase in non-current liabilities as on 31 December 2020, decent stock price movement in the past few days, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $2.51, up by 20.09% as on Jul 1, 2021, owing to the update regarding the non-binding indicative proposal from Crayon Group Holding ASA.

RHP Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.