RPM Global (ASX: RUL) FY24 Update
A Reality Check on Market Expectations
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I wrote my initial thesis for RPM Global in early April :
Here's what I noted about their valuation at that time:
RPM Global has confirmed its financial outlook for FY2024, The company expects:
Total Revenue to range between $110 million and $115 million, a notable increase from $98.4 million in FY2023.
EBITDA to be between $21.5 million and $23.5 million, up from $12 million in the previous year.
Profit Before Tax to fall between $16.5 million and $18.0 million, compared to $4.8 million in FY2023.
Reality Check
In today's update, RPM Global provided a FY24 market update: FY24 Market Update for RPM Global
Total Gross Revenue: $113 million to $114 million.
EBITDA: $18.7 million to $19.3 million (before management incentives).
Profit Before Tax: $14 million to $14.5 million (before management incentives).
The company also expects management incentives to be between $3.5 million and $3.9 million. Deducting these incentives, the Profit Before Tax comes down to $10.1 million to $10.6 million.
At the time of writing, the market has reduced RPM Global's market cap by 20%, bringing the share price to $2.25 and the overall market capitalization to roughly $500 million.
The reason for the guidance miss is given as below :
The lower-than-forecasted profitability is due to reduced perpetual license sales and the timing of subscription licenses signed during the second half of FY2024
My initial thesis isn’t broken by today’s update.
However, the management’s ability to forecast is definitely in question here. I believe this has happened before. It might be better if the management refrains from providing guidance in the future to avoid these self-inflicted setbacks.
I believe this update will rightfully adjust market enthusiasm to a more realistic level.
Thank you for your insight.