The Rhipe Ltd (ASX: RHP) share price went into freefall today, down 13.4% to $1.87 by the market’s close. From the opening bell, investors began to run for the hills after digesting the release of the company’s FY20 results. At midday, the Rhipe share price stabilised and hasn’t moved much since.
What moved the Rhipe share price?
For the financial year ending 30 June, Rhipe reported a 15% lift in net revenue to $55.8 million compared to the prior corresponding period. Net profit after tax was $5 million, down from $6.2 million in FY19.
However, when adjusted for the company’s investment in Japan and its provision of doubtful debt, that figure increased to $6.9 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $11.6 million, an increase of 16%.
Rhipe’s operating profit stood at $15 million, a jump of 17% excluding its joint venture with Japan Business Systems Inc.
A possible catalyst for the plunge in the Rhipe share price was that its earnings per share fell 23% to 3.49 cents, from 4.53 cents.
Cash on hand was $60.9 million, almost double the $35 million recorded the prior corresponding period. However, Rhipe completed a $32.5 million capital raise in April this year.
The company declared a fully franked dividend of 2 cents per share to be payable on 24 September.
COVID-19
The cloud channel business reported a slowdown in travel, marketing and headcount related costs during the challenging economic environment caused by the coronavirus pandemic.
Furthermore, Rhipe witnessed an increase in its customers asking for extended payment terms and customers being unable to pay their bills. As a result, Rhipe has increased its provision for doubtful debts to cover the expected increase in business failures in FY21.
Rhipe’s Dynamics365 consulting practice saw a dramatic decline in project workload. While the Dynamics365 pipeline has improved, the business underperformed to target in FY20.
Thus, management is focusing on carefully controlling costs during the pandemic.
FY21 outlook
Management advised it expects its public cloud business to continue to be the growth engine for the company, despite the economic challenges ahead.
The company said it will prudently invest in its licensing sales and solutions division whilst seeking new growth revenue markets. Rhipe will be using its operating profit to fund its expansion.
About the Rhipe share price
The Rhipe share price has recovered somewhat since its March low of $1.16, up 61% to date. However, the Rhipe share price is trading 10% lower since the beginning of the year.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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