Initial public offering of RS2 Software plc
Share offer price set at €0.80 per share
RS2 Software plc published a prospectus last Friday in connection with a combined offering of 12,500,000 shares at a price of €0.80 per share, valuing the company at €30 million. The combined offering is made up of an offer of 7,500,000 shares by Information Technology Management Holding Limited (the majority shareholder) and an issue of 5,000,000 shares by the company. Bank of Valletta plc agreed to underwrite up to a maximum of 5,000,000 shares.
Following the initial public offering, Information Technology Management Holding Limited will hold 58.9 per cent of the total issued share capital of RS2 amounting to 37,500,000 shares. CEO Mario Schembri will have a 7.8 per cent equity stake while the number of shares in public hands, the free float, will amount to 33.3 per cent of the total issued share capital. The two principal shareholders (ITM Holding Limited and Mr Schembri) have undertaken not to transfer or otherwise dispose of any of their remaining shares in RS2 during the next 24 months.
A pre-placement exercise for up to a maximum of 50 per cent of the combined offering (6,250,000 shares) will take place on June 5. Those shares not taken up during the pre-placement in addition to the other 6,250,000 shares will be made available during the general public offering which opens on June 9 and closes on June 13 or earlier in the case of over-subscription. Applications to participate in the pre-placement exercise must be for a minimum of 10,000 shares (€8,000) and in the general public offering the minimum application is of 2,000 shares (€1,600). RS2's shares will be admitted to the official list of the Malta Stock Exchange.
RS2 is a global provider of card payment solutions, IT consultancy and related services to international and domestic banks, service providers, retailers and other financial organisations. RS2 has focused on development and implementation of client/server-based card payment solutions under the trade name BankWORKS®, which is certified by major international card organisations such as Visa International, MasterCard, Diners and American Express and is used by over 30 banks in several countries.
RS2's clients include Banca Intesa, HSBC Bank Malta plc, Riyad Bank, Arab Jordan Investment Bank, HPB, Banque Saudi Fransi as well as other service providers.
These include Omnipay, CreditCard Services Co, S-Pankki and EDB Business Partner which, in turn, service various other financial institutions. For example, through one of its European service providers, RS2's software is used by BNP Paribas, Société Générale, Wells Fargo, Chase, CommonwealthBank and CitiBank.
RS2's principal market is Scandinavia, which contributed 45 per cent of the company's total revenue last year. The company has licensed solutions in other European countries such as Ireland, Hungary, Croatia and Malta. RS2's first client was Mid-Med Bank Ltd in 1988 (now HSBC Bank Malta plc). HSBC Malta accounted for just under 7 per cent of RS2's total revenue last year. RS2 generated 11.8 per cent of its turnover from clients in the Middle East mainly in Jordan and Lebanon. Almost 54 per cent of the company's total income last year was generated from enhanced services mainly comprising comprehensive package agreements with some of its clients. These package agreements normally cover a five-year period offering clients the BankWORKS® licence, maintenance and a specified amount of services against an annual predetermined fee.
Last year, revenue from the comprehensive package agreements accounted for 14.4 per cent of the company's total revenue but this is expected to increase to 28 per cent during the current financial year to December 31, 2008 as the company is now focusing on promoting these package agreements with its clients. Meanwhile, maintenance and support fees accounted for over 21 per cent of RS2's total income during 2007. The comprehensive package agreements and maintenance and support fees are considered to be recurring income, which accounted for over 40 per cent of total revenue in 2007 rising to almost 50 per cent in 2008. The other major income generator is from the licence fees, which contributed just under 23 per cent of total revenue in 2007.
RS2 was originally incorporated as an offshore company on April 5, 1993 under the Malta International Business Activities Act and continued to operate under the Companies Act with effect from February 7, 2000. The company changed its name to RS2 Software Limited on June 6, 2006 and was converted into a public limited company on April 24, 2008.
RS2 is also a key Oracle partner. As a result of this partnership, opportunities for the company are increasing in new markets such as Turkey since Oracle is also working concurrently to penetrate these new markets.
The net proceeds from the share issue of five million shares (amounting to €3.8 million) will be mainly used to open regional offices to provide the resources necessary to service the clients in the surrounding areas and to increase market penetration. The first new office will be opened in Jordan and this will service all Middle East clients while the Scandinavian office will be opened to service clients in Denmark, Sweden, Norway and Finland. RS2 also plans to eventually open up offices in the United States of America.
RS2 will also be using part of the proceeds to intensify its research and development in order to maintain its prominent market position. Moreover, RS2 plans to establish a training academy in Malta to provide ongoing training to its clients worldwide.
RS2 has been in operation for almost 20 years generating healthy profitability levels.
The company posted a profit of €2.2 million during the year ended December 31, last year and this is expected to climb by 36 per cent to €3 million this year as a result of an estimated 30 per cent rise in revenue. Based on the estimated weighted average number of shares in issue for this year, the earnings per share works out at €0.086. Compared to an offer price of €0.80 per share, the IPO is priced on an estimated p/e multiple of 9.3 times and a projected EV/EBITDA of 6.8 times.
In the prospectus, the directors of RS2 state that, subject to available cash flows, the company will distribute dividends to its shareholders but will also balance the distribution of dividends against the use of these funds towards maximising shareholders' return. RS2 has been classified as one of the top eight card management companies worldwide by Gartner Inc., the world's leading information technology research and advisory company.
It is one of the few companies offering a total card management software package to banks and other service providers featuring some unique characteristics. Mr Schembri stated in a recent interview that the company has only tapped a small proportion of the potential market and is thus well positioned to accelerate its growth in the years ahead if it successfully penetrates other markets following the establishment of the regional offices in the Middle East, Scandinavia and the US.
For further information on RS2 Software plc, including the risk factors, investors are requested to consult the prospectus, which is available from our website at www.rfstockbrokers.com.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen.
Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved
• Mr Rizzo is director of Rizzo, Farrugia & Co (Stockbrokers) Limited
Following the initial public offering, Information Technology Management Holding Limited will hold 58.9 per cent of the total issued share capital of RS2 amounting to 37,500,000 shares. CEO Mario Schembri will have a 7.8 per cent equity stake while the number of shares in public hands, the free float, will amount to 33.3 per cent of the total issued share capital. The two principal shareholders (ITM Holding Limited and Mr Schembri) have undertaken not to transfer or otherwise dispose of any of their remaining shares in RS2 during the next 24 months.
A pre-placement exercise for up to a maximum of 50 per cent of the combined offering (6,250,000 shares) will take place on June 5. Those shares not taken up during the pre-placement in addition to the other 6,250,000 shares will be made available during the general public offering which opens on June 9 and closes on June 13 or earlier in the case of over-subscription. Applications to participate in the pre-placement exercise must be for a minimum of 10,000 shares (€8,000) and in the general public offering the minimum application is of 2,000 shares (€1,600). RS2's shares will be admitted to the official list of the Malta Stock Exchange.
RS2 is a global provider of card payment solutions, IT consultancy and related services to international and domestic banks, service providers, retailers and other financial organisations. RS2 has focused on development and implementation of client/server-based card payment solutions under the trade name BankWORKS®, which is certified by major international card organisations such as Visa International, MasterCard, Diners and American Express and is used by over 30 banks in several countries.
RS2's clients include Banca Intesa, HSBC Bank Malta plc, Riyad Bank, Arab Jordan Investment Bank, HPB, Banque Saudi Fransi as well as other service providers.
These include Omnipay, CreditCard Services Co, S-Pankki and EDB Business Partner which, in turn, service various other financial institutions. For example, through one of its European service providers, RS2's software is used by BNP Paribas, Société Générale, Wells Fargo, Chase, CommonwealthBank and CitiBank.
RS2's principal market is Scandinavia, which contributed 45 per cent of the company's total revenue last year. The company has licensed solutions in other European countries such as Ireland, Hungary, Croatia and Malta. RS2's first client was Mid-Med Bank Ltd in 1988 (now HSBC Bank Malta plc). HSBC Malta accounted for just under 7 per cent of RS2's total revenue last year. RS2 generated 11.8 per cent of its turnover from clients in the Middle East mainly in Jordan and Lebanon. Almost 54 per cent of the company's total income last year was generated from enhanced services mainly comprising comprehensive package agreements with some of its clients. These package agreements normally cover a five-year period offering clients the BankWORKS® licence, maintenance and a specified amount of services against an annual predetermined fee.
Last year, revenue from the comprehensive package agreements accounted for 14.4 per cent of the company's total revenue but this is expected to increase to 28 per cent during the current financial year to December 31, 2008 as the company is now focusing on promoting these package agreements with its clients. Meanwhile, maintenance and support fees accounted for over 21 per cent of RS2's total income during 2007. The comprehensive package agreements and maintenance and support fees are considered to be recurring income, which accounted for over 40 per cent of total revenue in 2007 rising to almost 50 per cent in 2008. The other major income generator is from the licence fees, which contributed just under 23 per cent of total revenue in 2007.
RS2 was originally incorporated as an offshore company on April 5, 1993 under the Malta International Business Activities Act and continued to operate under the Companies Act with effect from February 7, 2000. The company changed its name to RS2 Software Limited on June 6, 2006 and was converted into a public limited company on April 24, 2008.
RS2 is also a key Oracle partner. As a result of this partnership, opportunities for the company are increasing in new markets such as Turkey since Oracle is also working concurrently to penetrate these new markets.
The net proceeds from the share issue of five million shares (amounting to €3.8 million) will be mainly used to open regional offices to provide the resources necessary to service the clients in the surrounding areas and to increase market penetration. The first new office will be opened in Jordan and this will service all Middle East clients while the Scandinavian office will be opened to service clients in Denmark, Sweden, Norway and Finland. RS2 also plans to eventually open up offices in the United States of America.
RS2 will also be using part of the proceeds to intensify its research and development in order to maintain its prominent market position. Moreover, RS2 plans to establish a training academy in Malta to provide ongoing training to its clients worldwide.
RS2 has been in operation for almost 20 years generating healthy profitability levels.
The company posted a profit of €2.2 million during the year ended December 31, last year and this is expected to climb by 36 per cent to €3 million this year as a result of an estimated 30 per cent rise in revenue. Based on the estimated weighted average number of shares in issue for this year, the earnings per share works out at €0.086. Compared to an offer price of €0.80 per share, the IPO is priced on an estimated p/e multiple of 9.3 times and a projected EV/EBITDA of 6.8 times.
In the prospectus, the directors of RS2 state that, subject to available cash flows, the company will distribute dividends to its shareholders but will also balance the distribution of dividends against the use of these funds towards maximising shareholders' return. RS2 has been classified as one of the top eight card management companies worldwide by Gartner Inc., the world's leading information technology research and advisory company.
It is one of the few companies offering a total card management software package to banks and other service providers featuring some unique characteristics. Mr Schembri stated in a recent interview that the company has only tapped a small proportion of the potential market and is thus well positioned to accelerate its growth in the years ahead if it successfully penetrates other markets following the establishment of the regional offices in the Middle East, Scandinavia and the US.
For further information on RS2 Software plc, including the risk factors, investors are requested to consult the prospectus, which is available from our website at www.rfstockbrokers.com.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd are members of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the issuer/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen.
Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2008 Rizzo, Farrugia & Co. (Stockbrokers) Ltd. All rights reserved
• Mr Rizzo is director of Rizzo, Farrugia & Co (Stockbrokers) Limited