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RTX - Hidden gem and vastly undervalued

72762 Fama&French 17/7 2015 12:33

RTX is a Danish high tech firm that develops and designs wireless communication products. The firm sells it's products and solutions around the world with it's main market being Europe.
The company in its Q2 14/15 reported revenue growth of 21,9%, its main divisions, Enterprise & VOIP and Design Services, reported growth of 21,5% and 23,1% respectively. With the European economy stabilizing and a pick up in growth in the horizon, and with the weak EURO exchange rate, it should give a nice boost to growth and earnings going forward. Moreover RTX increased it's gross margin from 55,1 to 56,1% further showing that the firms business is easy and cost effective when scaled up. Cash flow almost doubled relative to last year.

The firm raised its full year earnings estimates on March 9 and reaffirmed the raised guidance in the resent Q2 earnings report. Moreover RTX is currently engaged in a share-repurchase program, which sends a good signal to investors that 1) Management believe the share price is depressed and 2) Shareholder friendly policy that signals commitment to future dividends or share-repurchases.

The company has a insider ownership of over 9% and with an new employee share incentive scheme the right motivation is present. Further the Danish mutual fund, "Fundamental Invest", with the successful fund manager Michael Voss, owns 5,25%. Mr Voss is know for generating high returns and as being a sound value investor.

Relative to its competitors RTX, is cheap with a P/E of 12 relative to an average of 28. Further on EV/Revenue and on EV/EBITDA, RTX, is trading on lower multiples than its main competitors. Moreover with the growth that RTX is generating, it should be trading at lot higher.(See figure 1)

In a DCF model, being realistic and conservative, with estimated growth rates of 20% in the coming 2 years falling to around 13% YoY in 2020. Assuming that the margins stay at its current high levels.With an WACC of 11% and perpetuity growth rate of 4%.
This translate into a fair value of 156 DKK relative to its trading price of 89 DKK (of 17/07-15), which represents an upside potential of 75%.
Using the EBITDA multiple method its fair value is closer to 200 DKK, giving a upside potential of 121 %.

My recommendation is strong BUY.

Stay tuned for further FA analysis and global macro thoughts.


(I currently don't hold a position in RTX, but will buy in the coming future)



17/7 2015 13:17 investor1989 372763

Helt enig i din analyse. Jeg har også et kursmål omkring 190 DKK pr. aktie og en position på 25.000 stk.