What is the stock?

Redflex (RDF)

How long have you held the stock?

Since July 2017

What do you like about it?

Redflex (RDF AU) is a global leader in traffic enforcement products and services. It has developed world leading enforcement camera technology which it generally owns and operates. Consequently, RDF now has one of the world’s largest networks of digital speed and red-light cameras. Over the years, RDF has had a chequered past, however, with a new management team now in place and settlements agreed RDF is starting to win contracts on a regular basis.

How is it better than its competitors?

RDF has continued to invest in R&D which drives its superior products. Its technology coupled with its IT platform, own billing software and an integrated back office also helps the group win and keep customers.

What is your target price?

We generally take a three year view on all investments. We feel businesses which operate in similar sectors trade on c12x EBITDA through the cycle. Given RDF’s past troubles, it will take some time for the market to be willing to price it on sector averages. However, with RDF currently trading on c4x EBITDA we can see how a multiple re-rating from this low base can occur. Consequently, we see value in RDF up to A$0.90 per share based on current expectations.

At what point would you sell it?

We are strong believers in management delivering on its articulated strategy. If the story changes and does not make strategic sense we would look to exit the position.

How much has it added (subtracted) to your overall portfolio over the last 12 months?

Since purchasing RDF we have made c30%. Our risk return has evolved, and as such we have increased our position size to reflect our level of conviction due to new management, and increasing certainty around earnings from new contract wins.

Where do you see value?

Due to the history of RDF and the turbulent times it has had, the market has written it off and it’s no longer on people’s watch lists. A considerable amount of work has been done by the board and management team to clean up historical messes and prepare the business for a more sustainable future. We feel if you scratch the surface of the company, you should be able to see that past indiscretions have been more than priced in.

Source: ASX

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