Why are we again at 10.5p bid?

It doesn't add up...

Good Results + Strong buying pre results + Christmas online buying soon = Price drop

Then again some companies that have debt for equity hanging in the balance, poor results and bankruptcy around the corner and they go up!

Why sell now at a loss?

Wont that be a kick in the teeth when we see 13.5p 14p again!

Best of luck all.

Buy Retail Decisions at 20.25p
Argues small company expert Paul Scott
This investment idea continues the theme of my recent article on Fayrewood, and highlights what I believe is another example of a growth company, trading well, which the market has priced too low.

Retail Decisions plc describes itself as a specialist niche supplier to the payments industry. The group website is worth a look, and can be found at www.redplc.com .

By far the most profitable division is the Australian fuel cards business, which claims market leadership. Other divisions focus mainly on card payment processing & fraud prevention, especially in the rapidly growing Cardholder Not Present ("CNP") sub sector (e.g. internet transactions). This is very much a "hot" sector of the market at the moment, as investors recognise the scope for rapid growth, however RTD seems to have been overlooked until recently.

Retail Decisions has a market capitalisation of 56.7 million pounds, based on 290.6 million shares at 19.5p .

As always, I've put my money where my mouth is, and hold over half a million shares in RTD. One reader asked if I receive any kind of remuneration for writing articles for uk-analyst.com. The answer is no.

Positive Trading

A fortnight ago on 28th October, RTD issued a very positive trading update by RNS, which announced that;

"the Board expects the Group's full year profit before exceptional costs to be materially in excess of current market expectations"

As you would expect, this announcement triggered a significant rise in the share price, from a recent low of around 13p to 19p. Some investors may (understandably) baulk at buying the shares after a near-50% rise in price, but one has to weigh up what value to place on the additional comfort of knowing for sure that the company is trading very well.

At the very least I am suggesting adding RTD to your watch list, and buying on any pullback in price. To quantify things, original market expectations look to have been around 1.5p EPS for 2004, and the actual figure (adj. EPS) for 2003 was 1.4p, so it would seem sensible to pencil in around say 1.8p adj. EPS for 2004 as a realistic target (possibly more). This 1.8p estimate puts the shares, at 19p on a PER of just 10.6, which seems a bargain to me, for a growth company that is performing well.



What is driving profits upwards ?

Firstly, the bulk of profits come from the Australian fuel card business. A higher oil price is great news for RTD, as fuel cards work on a per transaction fee, which is a fixed percentage of the transaction value. Hence higher oil & fuel prices, means directly higher profits for RTD.

Fraud prevention & payment processing are the other, less profitable divisions, but things seem to be coming together there as well. The recent update says that trading has been "very strong" in this division.

The product most likely to excite the market, is RTD's "ebitGuard" product, for online payments & fraud prevention. Transactions grew by 168% in 2003, and it has some big name clients, including Walmart.com . The beauty here is that the infrastructure is in place to handle a lot more business without taking on more costs.

This is a big growth area, not only because online payments are growing in volume, but also because the UK's move to Chip & Pin is likely to shift fraud away from retailers, towards online transactions, hence drive demand for RTD's products. RTD also benefited in 2003 from sharp cost-cutting, with a useful 1.5 million pounds added to profits from a reduction in staff costs.

Churning out cashflow
When reading the Annual Report for RTD, I was struck by just how cash generative this business is. EBITDA was 5.9 million pounds in 2003, and increased to 3.8 million pounds for the 6 months to 30/6/2004.

Given that trading has since improved further, it now looks as if RTD is churning out around 8 million pounds p.a. in EBITDA (i.e. operating cashflow before distortions from working capital changes).

Consider that the market capitalisation is 56.7 million pounds (at 19.5p a share), and the attraction to a predator or Venture Capitalist is obvious.

Net cash had reached 6.3 million pounds by 30/6/2004, and this will probably have risen to around 10 million pounds by the year-end. That would reduce the Enterprise Value to just 46.7 million pounds, and result in a net cash adjusted PER of around 8.9 (based on my 1.8p EPS forecast for 2004).

At the moment there is no dividend, but it would be a relatively simple matter to restructure reserves in order to start paying dividends.

Consider also that there are no reported greater than 3% shareholdings, not even by management, and clearly this would be a relatively easy target for a predator to snap up.

Its not all good news

There is the uncertainty of litigation hanging over RTD. This knocked about 3p off the share price back in August 2004.

Whilst these things are always a nightmare for investors to prejudge, so far the signs seem positive for RTD. A NASDAQ-listed competitor, CyberSource (NASDAQ: CYBS) has filed an action in the US claiming that RTD's ebitGuard product infringes one of its Patents.

The latest RNS from RTD is encouraging, and says that RTD is "vigorously defending" itself, and has found evidence which may undermine the competitor's Patent.

Given that CyberSource is capitalised at $215m, and on a PER of 129.2, one wonders why CyberSource don't just buy RTD instead of suing them. This would make obvious sense, as such a move would be immediately earnings enhancing for the bidder.

In Summary

Good points

Trading very well
Growth sector
Low valuation (net cash adjusted PER of 8.9)
Competitors on high valuations (esp. NASDAQ)
Possibility of corporate action due to valuation anomaly
Scope to start paying divis soon ?
Strong balance sheet
Very good cashflow
Pension fund deficit - none. Defined contribution scheme(s) only
Shares fairly liquid - easy to trade in blocks of 100,000 shares
Bad points

Management shareholdings are too low
Uncertainty over CyberSource litigation
Shares have risen 50% in past fortnight, so may be best to wait for a pullback before buying
Bulletin Board punters' favourite stock, so price can be volatile
Buy at 20.25p.

Share price: 19.75 - 20.5p

Stockmarket: LSE

Symbol: RTD

Paul Scott trained as a chartered accountant and then moved into industry spending nine years as finance director of a private clothing retailer with around 150 shops. He has been investing for over five years and is now a professional investor specialising mainly in smaller companies. Since starting to invest full time in October 2002 Paul's portfolio has risen over 500%. Paul's website at www.scottcapital.co.uk gives more details of his activities

Buy Retail Decisions at 20.25p
Argues small company expert Paul Scott
This investment idea continues the theme of my recent article on Fayrewood, and highlights what I believe is another example of a growth company, trading well, which the market has priced too low.

Retail Decisions plc describes itself as a specialist niche supplier to the payments industry. The group website is worth a look, and can be found at www.redplc.com .

By far the most profitable division is the Australian fuel cards business, which claims market leadership. Other divisions focus mainly on card payment processing & fraud prevention, especially in the rapidly growing Cardholder Not Present ("CNP") sub sector (e.g. internet transactions). This is very much a "hot" sector of the market at the moment, as investors recognise the scope for rapid growth, however RTD seems to have been overlooked until recently.

Retail Decisions has a market capitalisation of 56.7 million pounds, based on 290.6 million shares at 19.5p .

As always, I've put my money where my mouth is, and hold over half a million shares in RTD. One reader asked if I receive any kind of remuneration for writing articles for uk-analyst.com. The answer is no.

Positive Trading

A fortnight ago on 28th October, RTD issued a very positive trading update by RNS, which announced that;

"the Board expects the Group's full year profit before exceptional costs to be materially in excess of current market expectations"

As you would expect, this announcement triggered a significant rise in the share price, from a recent low of around 13p to 19p. Some investors may (understandably) baulk at buying the shares after a near-50% rise in price, but one has to weigh up what value to place on the additional comfort of knowing for sure that the company is trading very well.

At the very least I am suggesting adding RTD to your watch list, and buying on any pullback in price. To quantify things, original market expectations look to have been around 1.5p EPS for 2004, and the actual figure (adj. EPS) for 2003 was 1.4p, so it would seem sensible to pencil in around say 1.8p adj. EPS for 2004 as a realistic target (possibly more). This 1.8p estimate puts the shares, at 19p on a PER of just 10.6, which seems a bargain to me, for a growth company that is performing well.



What is driving profits upwards ?

Firstly, the bulk of profits come from the Australian fuel card business. A higher oil price is great news for RTD, as fuel cards work on a per transaction fee, which is a fixed percentage of the transaction value. Hence higher oil & fuel prices, means directly higher profits for RTD.

Fraud prevention & payment processing are the other, less profitable divisions, but things seem to be coming together there as well. The recent update says that trading has been "very strong" in this division.

The product most likely to excite the market, is RTD's "ebitGuard" product, for online payments & fraud prevention. Transactions grew by 168% in 2003, and it has some big name clients, including Walmart.com . The beauty here is that the infrastructure is in place to handle a lot more business without taking on more costs.

This is a big growth area, not only because online payments are growing in volume, but also because the UK's move to Chip & Pin is likely to shift fraud away from retailers, towards online transactions, hence drive demand for RTD's products. RTD also benefited in 2003 from sharp cost-cutting, with a useful 1.5 million pounds added to profits from a reduction in staff costs.

Churning out cashflow
When reading the Annual Report for RTD, I was struck by just how cash generative this business is. EBITDA was 5.9 million pounds in 2003, and increased to 3.8 million pounds for the 6 months to 30/6/2004.

Given that trading has since improved further, it now looks as if RTD is churning out around 8 million pounds p.a. in EBITDA (i.e. operating cashflow before distortions from working capital changes).

Consider that the market capitalisation is 56.7 million pounds (at 19.5p a share), and the attraction to a predator or Venture Capitalist is obvious.

Net cash had reached 6.3 million pounds by 30/6/2004, and this will probably have risen to around 10 million pounds by the year-end. That would reduce the Enterprise Value to just 46.7 million pounds, and result in a net cash adjusted PER of around 8.9 (based on my 1.8p EPS forecast for 2004).

At the moment there is no dividend, but it would be a relatively simple matter to restructure reserves in order to start paying dividends.

Consider also that there are no reported greater than 3% shareholdings, not even by management, and clearly this would be a relatively easy target for a predator to snap up.

Its not all good news

There is the uncertainty of litigation hanging over RTD. This knocked about 3p off the share price back in August 2004.

Whilst these things are always a nightmare for investors to prejudge, so far the signs seem positive for RTD. A NASDAQ-listed competitor, CyberSource (NASDAQ: CYBS) has filed an action in the US claiming that RTD's ebitGuard product infringes one of its Patents.

The latest RNS from RTD is encouraging, and says that RTD is "vigorously defending" itself, and has found evidence which may undermine the competitor's Patent.

Given that CyberSource is capitalised at $215m, and on a PER of 129.2, one wonders why CyberSource don't just buy RTD instead of suing them. This would make obvious sense, as such a move would be immediately earnings enhancing for the bidder.

In Summary

Good points

Trading very well
Growth sector
Low valuation (net cash adjusted PER of 8.9)
Competitors on high valuations (esp. NASDAQ)
Possibility of corporate action due to valuation anomaly
Scope to start paying divis soon ?
Strong balance sheet
Very good cashflow
Pension fund deficit - none. Defined contribution scheme(s) only
Shares fairly liquid - easy to trade in blocks of 100,000 shares
Bad points

Management shareholdings are too low
Uncertainty over CyberSource litigation
Shares have risen 50% in past fortnight, so may be best to wait for a pullback before buying
Bulletin Board punters' favourite stock, so price can be volatile
Buy at 20.25p.

Why so little interest ? People tucking them away for the future ?

g'day all nice rise while I'v bin away, now I'm back!!! ;-/ red again \-:

Pachandl... :o)))) = well pleased, ;-\ wry smile !

I thought you must have been on holidays again.

I thought holidays were good for the health!!!!!

douggie,go and book a world cruise and the RTD holders will have a whipround to pay for it p--s off tor two years.

Douggie, Do you sell before you return home??

not been on holiday.....just away..out of the county to foreign parts ....Lancashire, family duty my bairn's 45th thats older than I think I am !

Fred no... I never trade just watch wishing I knew when to.... longing for enough profit to have to pay huge C.G tax!!!!! ;o\ let it be soon

The last time I paid huge C.G tax, a year later I would have swopped my residual holdings for it. Reflecting on the bubble, even though I got out right at the top is painful. Like a fool I thought it had bottomed out rebought about six months to soon. One of the problems at the time was restrictions on single company peps and having to reinvest cash from sales within 42 days or take it out.

Slowly regaining lost territory but its uphill and I seemed to have put on weight and the engine is worn out.

mourning !!!!!!!!!!!!!

This should be it for the end of the consolidation phase - let's see if the march to 30p starts tomorrow...

Is Douggie going away again?

!

A good day even if the price didn't move due to low volume: 612K buys 19K sells.

Lots of small buyers getting in again by the looks of things.

OG

appears like a consolidation period before the next push north - breaking through the resistance at 21.5p could open up 25p in the short term - a nice contract announcement would be nice (or douggie going on his hols again)

Fundy,

I'm all for consolidation now that RTD have clearly broken out the pattern of being nothing but a trader's plaything.

A rapid rise would soon become a spike - which is the last thing us long-term folks hanging on for 1+ want to see.

A steady price and the next instalment of good news will guarantee further institutional interest.

Now....if all all invest x to pay for Douggie's "Christmas break" could we get a 10 bagger lol!

Here here OG :-)

The two factors which would do most to advance this share now are (1) admission to the techmark 100 list and (2) commencement of div payments. Either one would raise institutional interest; both together could lead to a complete re-rating.

Interesting comments from spractive on advfn regarding the TM100:

"We are position 96 on the allshare list, to go on in our own right we need to be around 70m, position 90.

Although Cryptologic, Ev2 Tech and ICM are above RTD, Crypt and ICM are deemed illiquid by ftse until year end, so ftse tell me. NCH are slightly above RTD.

Biotrace is position 115 so they could be replaced by one of the above definitely, Antisoma 106, if below 110 they are replaced.

Just over a week to go until reshuffle date but I am well confident RTD will go on, one little bit of good news, RNS regarding shareholding or contract win and we are on, Herald ( Katie Potts ) could put us straight on if she wants due to holding just less than 3%, if she increases to just over 3% and other fund managers will probably follow."

Come on douggie - lets see some smiles - or are you on holiday again???

Nice positive move today - would be nice to see it break the 21p resistance at the third time of asking - may well see 25p short term if that happens