Rhipe (RHP) -2.5%: first half results today were broadly in line with our expectations though the market was pretty bullish leading into it, or at least our analyst was! Revenue was up 15% on last year with operating profit up 34% highlighting the operational leverage in the business. We hold this stock in the soon to be released Emerging Companies Portfolio and for those that aren’t across it, Rhipe sells a bunch of software licences & cloud services including those from Microsoft. I met with the CEO & COO today over Zoom, both were keen to talk about three areas of the business that perhaps the market hasn’t fully understood.
1. They have over $57m in cash at the end of the half – this will be deployed into M&A. The cash has been there for some time, and not using it has concerned a few in the market.
2. Japan expansion – they are pushing money into the new joint venture, and while some deals are being signed, COVID has been a hinderance – sales in Japan rely significantly on being able to meet in person. The run rate is solid now, but they expect an uplift as the virus subsides.
3. They are looking to diversify off just a Microsoft offering, adding a broader set of services. A few smaller vendors have joined however they are looking at a number of other options – Microsoft tends to pay better margins but clients will want other products.
All up, RHP is a good business, leveraged to a fast-growing market with a strong balance sheet.
