• martinflitton1


It is never good to see a stock you hold sink southwards, which for some invariably triggers a stop loss, whilst for others, it can sow the seeds of doubt.

In the case of software business Rosslyn Data Technologies, the summer months delivered a gradual retrace and erosion, which saw the shares eventually dip below last years placing price of 5p.

This came about after a drought of news flow, along with board changes, which I previously mentioned in my last piece on the company.

Despite the absence of news on further contract wins which in itself is enough to turn off some investors, the story here really hasn’t changed, where with a sound balance sheet and excellent recurring revenue the shares continue to look increasingly undervalued.

With micro caps such as RDT, a combination of a leap of faith and patience are often key to achieving what can ultimately be sizeable rewards further down the line and to that end, I continue to believe that RDT will have its day.

The company is due to deliver the full year 2021 results in a couple of weeks time, where we already have a good idea of what the numbers will look like.

Nothing earth shattering on that front, with expectations of £7.4m of revenues with an EBITDA loss hardly likely to attract many potential buyers.

From a personal perspective however, I will be far more interested in the post period end and the prospects for full year 2022 and beyond as opposed to last year’s numbers, as the company really should now be well set with the opportunity’s that appear to exist.

With cash on the balance sheet forecast to stand at £6.7m the net cash figure after subtracting the £0.9m of bank debt will stand at a healthy circa £5.9m, which sees the business operating on a welcome and sound footing.

In so many cases, stocks that endure such lowly valuations are often rated accordingly due to extremely weak balance sheets or declining business prospects, thus making them one to avoid.

In RDT’s case, it is clear the balance sheet is very sound, while the business prospects also look attractive for organic growth and an overdue move to sustainable profitability.

In terms of positivity, it is already apparent from the last update that the Langdon custom product seems to have been going well, so it seems reasonable to assume that given the prevailing climate across this area that momentum has continued to build.

The ongoing post Brexit changes coupled with ever more red tap plays into the hands of this arm of RDT, so it will be interesting to hear where things stand at present.

Obviously, the Covid period hasn’t been easy for the core business in terms of closing new contracts, but as things have increasingly opened up and with a new man at the helm, one would assume that execution on that front is also improving.

RDT already boasts quality blue chip names as customers, so with Paul Watts now seemingly driving a more aggressive sales approach, his belief in delivering positively on organic growth could see a marked difference through full year 2022 and beyond.

As previously mentioned in earlier coverage here, RDT has some impressive Institutional holders on board, including Gresham House which is the major holder.

Interestingly, in a recent interview with the well-known Paul Hill, Gresham’s Ken Wotton sounded a positive note on RDT and the Gresham holding.

This included citing the ongoing expansion of digitalisation and big data procurement as presenting the company with increasing prospects for growth. He also mentioned that if the shares continue to languish at current levels, it could quite likely prove vulnerable to being acquired itself.

The latter is something I have been increasingly focused upon here, not as a driver for buying the shares, but rather, providing for a decent floor in conjunction with the strong cash position.

If downside risk can be limited, then risk to the upside should duly follow in due course, hence the reference at the outset of patience being required.

Having first bought into RDT last year, I have added further along the way, which concluded with my buying further yesterday.

Of course, there are negatives, the main point of concern being that operating in a competitive landscape RDT could get squeezed out by larger players or superior offerings, thus stunting its growth.

That of course is the rub, but looking at the positives here, the balance of risk for me appears to be skewed to the upside.

Revenue has been demonstrating growth which arguably endorses the product suite, moving from the 2018 £6.4m to the expected 2021 of £7.4m and that has been accompanied by strong recurring revenue which is forecast to come out at £6.4m for last year.

More will no doubt become clear on results day, so I’ll hopefully add further thoughts and comment then.

For now, the shares actually nudged up 7% yesterday, but at just 5.25p and with a market cap of £18m they remain cheap and could have some way to go if there is a positive tone accompanying last years numbers on which to build.

Interestingly, RDT appears to have been hiring over the last few months judging by the level of activity on its Twitter feed which also perhaps bodes well.

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