http://www.rcg.tv

607K WT trade and KBC moved off of the offer.

It might now be set for a good run into results, lets see how it moves with buys now, if the KBC are done selling (with the reporting of the 607K WT) we might see a decent move up through 100p into and after results on next Thursday.

This is a bit from the recent broker update after the H1 trading statement, all will be revealed come results on the 30th Aug :

RCG Buy 88p-Target Price 1.50

Event: RC Group has issued a positive H107 trading statement advising that results
will be ahead of market expectations. Both software and hardware sales have
contributed to the outperformance. Solution sales have been weak, but this
remains a much smaller portion of the business. Gross margins are also ahead
of expectations but some of this benefit has been absorbed by an increased
ramp-up in operational costs. This underpins the decision to move back office
operations to Malaysia.

Impact:
We expect H1 sales to be materially ahead (+30%) of our HK$423m forecast.
We have not published a full P&L interim forecast. However the company has
indicated that it is not altering its revenue expectation for H207 as this stage,
opting to take a more prudent stance. We have increased our FY07 HK$ sales
and PBT forecast by 15.8% and 13.5%, with HK$ EPS moving up 13.5%. The
weakening of the HK$ has however muted some of this upgrade with our
sterling 07 EPS forecast moving up 8.6%. We detail these changes overleaf.
Recommendation:
There is clearly considerable momentum behind the business and the 07 PE of
8.8x is far too low in our view. We see material upside and reiterate our Buy.

Headline Numbers Excellent sales traction
The H1 headline trading numbers look to be significantly ahead of our and
market estimates. We had not previously published a full H107 P&L forecast.
We expect the results to be in excess of 30% ahead of the HK$423m we had
forecast. Although gross margins are also set to be ahead of expectations, an
increase in operational costs is likely to absorb a lot of this.
The company has decided to maintain its sales expectation for H207 at current
levels. As such we were not prompted to follow through the significant H107
outperformance into H207E when constructing our new forecasts.
Nevertheless, as we highlight below, the strong H107 trading still leads to a
material FY07 upgrade. We also choose to move up our FY08 (and FY09)
forecasts, considering the increased traction the business is clearly enjoying.

thank you.

.

.

Vista logon for Fx Series announced today:

http://www.rcg.tv/press/business/280807.html

Dr. Raymond Chu, CEO and Chairman of RCG, commented: We are delighted with the launch of this product, which captures the latest market trends in mobile security running on the Microsoft Window Vista platform. In a recent announcement Microsoft stated that it has shipped 60 million copies of Microsoft Windows Vista to date and also implied that there is a growing demand for Vista compatible applications. We are confident of making substantial and sustainable developments within this market sector in the near future.

.

.

A strong Dow rally.

http://www.investegate.co.uk/Article.aspx?id=200708300701129730C

RCG Holdings Limited
30 August 2007

RCG Holdings Limited
('RCG' or 'the Group')

Interim Results

Continued strong revenue growth supported by
strategic geographical expansion and innovative applications

RCG Holdings Limited (AIM:RCG), a leading global provider of integrated
biometrics and RFID security solutions, today announces its Interim Results for
the six months to 30 June 2007.

The Group has outperformed and has built a solid foundation for sustainable
rapid growth during the second half of 2007, continuing through to 2008.

Financial Highlights

- 71% revenue growth to 38.7 million (H1 2006: 22.6 million) driven by an
increase in hardware sales (up 61%) and software sales (up 130%)

- Profit before tax increased to 12.1 million on the back of stronger
overall gross margin of 49% (2006 interim PBT: 6.3 million; gross profit
margin: 40%)

- EPS increased by 43% as compared to the same period in 2006, despite
dilution from the placing


Operational Highlights

- Successful innovative product launches of BioMirage and FxSecure Key
- Strengthened presence in Southeast Asia, Middle East and Greater China,
with the commission of RCG's Malaysian regional head office and the opening
of the Thailand office
- New niche RFID applications delivered in the high value areas of
anti-counterfeiting and financial industries
- Secured important channels into the People's Republic of China mass market
through continued collaboration with Digital China, a distribution
relationship with EuroAsia as distributor and several technological
alliances of the Group's biometric products
- Strengthened management with the appointment of KC Chong as the Group Chief Financial Officer.

Commenting on the results, Dr. Raymond Chu, Chairman and Chief Executive
Officer, stated: 'These results represent a significant outperformance over the
same period last year and we are extremely pleased with RCG's continued strong
progress. We believe that our technological expertise and geographical market
presence makes us the leading provider of integrated solutions for biometrics
and RFID within the industry. The steady growth of RCG's client base rapidly
improves the Group's bottom line.

'The Group will maintain its aggressive growth strategy across all business
divisions for the second half of 2007 with a focus on driving organic growth and
delivering shareholder value. Based on RCG's continued development we look with
enthusiasm into the second half of 2007.'

.

RCG does look undervalued, however, there are other things to consider which may effect the SP. I put this on AFN, so will share it here too.


The bear case is not so simplistic and its not just the Wang issue it is a combination of :

a/ Wang issue - this will be highly off putting to any potential buyer of large quantity.

b/ Sentiment - its in a clear downtrend.

c/ Visibility of earnings - basically non-existant, most earnings are derived from new products and its a continuous process, which leaves the door open at any time for a problem (although so far none have happened).

d/ Expansion into China - those who know China know the only way you expand into China is spend spend spend, and offer very good promotional payment and commission deals to agents. China also has many local companies producing lots of (but not all) the same goods, which means margins are not going to be impressive to start with once China becomes a larger chunk of revenue.

e/ Tax rising, whilst they are trying their best to evade full tax by moving around here there and everywhere with different subsidiaries etc.., at some stage it will catch up with them and tax rates will keep on rising upwards until they are at full tax rate.

f/ Throw away comment in the last results about having spent 70% of the placing money to date (30th August) on various things, but with no details.

g/ HK$ weakness, owing to the "weighted average" system that RCG use, their last results have not reflected the full HK$ weakness, and this weighting system will mean their results will continue to use a weaker and weaker HK$ even 6 months after the currency itself has done an about turn. Weighting might help now, but it kicks you in the teeth once later.

h/ Weighted average number of shares in issue, again RCG report EPS based on "weighted average" - so again with the placing this year, the full force of that will only be represented in 2008 figures, but for sure the 2008 FY figures will see the weighting move to a higher number of shares in issue.


For example, if you put interims into prelims, then the interim 5.6p EPS after putting in a weaker HK$, and putting in higher tax, and putting in more shares in issue - it might only contribute for example 4.9p to FY figures........may be less than that.

If you go to the extreme, and use non-weighted values but actual values then re-working the interim figures you get :

PreTP 185.739m HK$
Tax @ 7% = 13m HK$
Post Tax Profit = 172.8m HK$

Shares in issue 232,267,677

EPS in HK$ = 74.4 cents
X rate = 15.89
EPS in pence = 4.68p


Will there be any exceptionals on the prelims ? Whats the outlook for 2008 ? Will there be a big push into China which may prove disasterous on margins ? How high is the R&D spend in H2 ? How much cash has been spent ? How much of the revenue is recurring ? Why has the company maintained silence since interims ? Who has been selling in such volume since 150p downwards ? Why did the directors sell so much stock in this years placing if they knew that 2007 and 2008 would be good years ? If a new shareholder acquires a majority stake (as in the Wang issue) must they launch a bid for the company, or sell their stock holding downwards ? (Not the same rules as an IPO large holder).


There are many questions that can be asked, but the key event is H2 performance, for more reasons that just one. Way back in my TMF post of March this year I drew attention to H2 as a possible "hiccup" event for RCG, so will H2 be a hiccup or not ?

Many thanks for the above, PP. I've been keeping an eye on RCG for some time: did very well with this, having bought shares last year and then sold when Ms Wang died earlier this year. Will need to do some more research.

What has RCG got to do to move there SP, there only seems to be good news , last results were fab, loads of cash and great products.
I,ve topped up with 20k @68p am holding 50k in total

RNS re acquisition today.


For full text click here


Includes the following paragraph:
"With upcoming large-scale events such as the 2008 Beijing Olympics Games and the
2010 World Expo in Shanghai together with the booming sports and entertainment
industries, China is entering an exciting phase of rapid growth and increasing
demand for stadium security, ticket anti-counterfeiting, crowd handling and
point-of-sale automation. The opening of this vertical industry provides RCG
with significant opportunities for value creation."

Toya, quite expensive, given the price paid. It was a good thing to do though. However, the cash burn rate is going to be a concern come prelims imv, the question being just how much cash will have reduced from interims to prelims. If people sense a placing coming in say 18 months time, its going to limit the performance of the shares, imv.

PP: I agree and just keep this one on my watchlist. Haven't (yet) got back into RCG since it plummeted below 130p as it seems to lack the will to head back up there. Pity really - I was very excited about the company this time last year. Just goes to illustrate that holding on long-term regardless is not always the best policy.

Just put this post on AFN, so a copy here for info :


"""""""""""p0lzeath, thats questionable.

Did they put a foot wrong ? I would say yes in moving nearly all their production into China.

Earlier this year China made changes to the tax laws, this affected low tech items in the most, and a hit was seen on numerous items, particularly export. Just last week China has introduced new tax laws again, particularly for export. This time it will effect Hi Tech items. It could therefore be that in 2008 you'll see RCG take a big hit in terms of increasing tax levels from all their China subisdiaries. Certainly in 2008 their margins will get hit due to these China tax changes imv.

Perhaps this now known impending change is the reason why they have done an acquisition at that price. It was said they would not pay over price, and yet they have paid a very high price for this company. Why ?

The coming 1st Jan 2008 China Labour Law changes are also going to hit operating costs in China, and certainly going to hit margins of many many companies.

If China continues on this "normalisation" process to bring everything into line with 1st world countries, then a China that is presently no longer cheap, will become even less cheap. Its going to happen, everyone knows that.

The pending effects of the Labour Law changes was a known item going forward and would have been budgeted for, however these new tax changes will not have been. Their implications for 2008 and 2009 is what you should be looking out for.

In terms of cash, if 75% of the placing money was spent by 30th August 2007 it looks like nearly 100% will be spent by now. They have their cash apart from those placing funds, but it looks like "cash" will take a whopping great hit in H2.

You can dress that up with vast revenue growth and earnings of 13p - but if cash goes down by a big lump, then fear will grow that a placing is getting nearer, no need for "12 to 18 months" two months ago starts wearing thin should by March 08 people see a big drop in cash.

Fast growth needs cash, lots of it, and that is not a story the markets presently want to hear, which is obvious by the way many shares are reacting presently. Are many feeling confused as to why this share is doing this, but that share is doing that.............thats because the rules of the game in the present market have changed, and if you don't change with sentiment you'll be sat on falling shares.

However its good to see them finally admit to doing something with the cash and telling everyone what it is, as opposed to the 30th Aug statement saying they have spent 75% of the placing funds to that date and not giving any detail as to what it was spent on apart from a "broad array of things".

Might be a good day for a trading update, so those looking for a spike to sell into will be hoping its released later today no doubt :) """"""

Thanks PP - good analysis, as always :)

RCG announce trading update:

"RCG's business activities during the second six months period ending 31 December
2007 remain robust and strong, and accordingly, the Group expects to report full
year figures that are significantly ahead of market expectations. The Group
expects to release its full year audited numbers on or before the final week of
February 2008.

The Group is pleased to announce that its ongoing organic growth remains strong.
In the Group's 2007 interim report, RCG announced its intention to strengthen
its technological innovation, to penetrate new and high value vertical
industries and to sustain its geographical expansion. The Company is pleased to
report that all three strategies remain on track."

Full RNS here:

RCG Trading Update