RDF - Redflex Holdings - Aussie Stock Forums

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  1. #1

    Post RDF - Redflex Holdings

    I am thinking about investing in some Redflex shares in the near future and wanted to find out what other people felt about their prospects.
    For those who don't know, Redflex produces red light cameras ect. It installs and manages them for the local governments. They are currently in Australia and the US (where 80% of their cameras exist)
    I think with road safety becoming more of an issue governments will continue to look for more road safety devices, especially when they produce them a healthy profit
    Plus since the recent fall in the AUS/US exchange rate their revenue from the US will now look healthier.

    Anyone have any other views on Redflex?


  2. #2

    Default Re: RDF - Redflex Holdings

    Very much agree with you. You would be aware that Redflex recently announced that it has received (several) non-binding indicative takeover offers at > $3.50 a share. The AGM is 19 November and market would be expecting management to provide an update on the takeover situation, which management has publicly stated it is considering as part of an overall strategic review. It would be difficult for management to ignore/disregard the offers in the current environment (given the stock was trading at ca. $2 before the bids were announced). However, it would be reasonable to assume that $3.50 is a low ball bid and a higher offer would be required (given the strong fundamental position of this company and its strong earnings potential).

    Ignoring the takeover upside, the US traffic camera market is very immature (10% penetration) in comparison to the Australian market (which is mature and dominated by redflex). Redflex is the number one operator in the US, and American Traffic Solutions (ATS) is number 2. Effectively a duopoly - but note that redflex has been winning most new / large competitive tenders recently (see Arizona). You may be aware that goldman sachs recently bought 5% of ATS (note ATS is a private company) - further reinforcing the appeal of this industry.

    It is clear that there is considerable upside in the US market.

    You were also correct in that redflex will benefit from USD/AUD currency translation given that 85% of earnings are USD denominated.

    The company generates very high cash flow (see analyst numbers below). Its a cash cow and hence the appeal for a takevoer/private equity.

    June 2008A 2009E 2010E 2011E
    GCFPS 28.2 42.0 50.8 60.8

    Finally would agree with the view that the traffic camera market is 'recession proof'. Governments earn significant revenue from safefy cameras (at no cost to them given that redflex install and operated the systems - and collects the infringements on behalf of the government). Redflex clips the ticket on the way through. ie. its a win / win situation (govt earns revenue for no outlay / community benefits through reduction in speeding and red light issues / and redflex benefits of course).

  3. #3

    Default Re: RDF - Redflex Holdings

    here is the ASX accouncement regarding the recent non-binding indicative proposals re redflex rdf


  4. #4

    Default Re: RDF - Redflex Holdings

    Another Photo Enforcement Company Buyout Possible
    Investment firms look to buy out Australian photo enforcement company Redflex.

    An investment firm may buy out another major provider of red light cameras and speed cameras. Redflex Traffic Systems, based in Melbourne, Australia, operates about one-half of the photo enforcement devices in the United States. The company announced today that it has been approached by unnamed suitors carrying generous offers.

    "In recent weeks, Redflex has been approached by several parties expressing interest in acquiring 100 percent of the issued capital of the company," a release to Australian Securities Exchange investors stated. "The board has now received multiple nonbinding indicative proposals from credible parties to acquire the company at indicative values in excess of $3.50 per share."

    As late as Wednesday Redflex stock had been trading at just A$2.17 (US $1.43) a share. The potential to be paid more than the 52-week high for a share in the company caused the stock to close today at A$2.80 per share, up 27 percent. Redflex hired Gresham Advisory Partners to review the proposals to determine whether selling the company, which has a market capitalization of A$253 million, would be in the best interest of the board of directors. The buyout offers follow last month's announcement that Goldman Sachs had acquired a minority stake in photo ticketing rival American Traffic Solutions (ATS). It also follows the announcement of massive growth in the US market for the Redflex product.

    "Again, new records have been set by substantial margins in relation to all standard measures of financial performance," Redflex Chairman Christopher Cooper wrote in the company's 2008 annual report which was released last week. "Between the start and finish of the financial year the US dollar declined in Australian dollar terms by approximately 13 percent. That being the case, the financial records established by Redflex are all the more commendable."

    Redflex saw an increase of 43 percent in traffic ticket revenue from the United States, driven primarily by an increase in the total number of ticket cameras installed from 877 to 1267. The demand for more cameras has increased as local jurisdictions continue to feel the pinch from the financial crisis. As home values continue to decline, property tax income likewise falls off, leaving cities and counties struggling to find money to fund expensive new social programs.

    That is when Redflex and competitors like ATS drop in and offer "turnkey" red light camera and speed camera solutions (view a sample presentation). With no effort or cost exposure on the part of the jurisdiction, many officials see nothing to lose by signing up to allow either Redflex or ATS to issue tickets on its behalf. Rhode Island based Nestor, Inc. also offers red light camera programs, but it closed trading yesterday at just 9 cents per share having announced a $2.5 million net loss for the first quarter.

  5. #5

    Default Re: RDF - Redflex Holdings

    hope a few have been riding the good fortunes of RDF of late. you would have seen positive comments at the AGM yesterday with profit outlook for the full year up 40% (and this is conservative given the potential for currency upside should the AUD stay at current levels given 80% of earnings are from the US).

    the company also released a detailed investor presentation (see ASX announcements). the key was the point that only 4 US states make up the bulk of the US traffic camera market at present and that RDF has between 50% to 75% of each of those markets. this translates into massive potential in the US market and positions RDF well to capitalise on this once the traffic camera concept is more accepted

    the company is also doing the right thing but its shareholders at the moment and allowing the potential bidders to undertake further discussions / preliminary due dilligence to see if they can extract a bid greater than the current ca. $3.50. you would recall that multiple bids were recently announced around that price. management has since made an announcement that it is allowing the bidders access to limited due dilligence regarding company plans etc to generate further shareholder value

    the below article from today's AGE gives a good summary of current events. at low $3 - the stock represents a great risk / reward profile given
    1. 40% growth in earnings for the current year (projected) based on continued success on camera rollout (not many other small cap stocks can confidently predict growth of this magnitude in this market)
    2. recession proof (economically insensitive) business model
    3. sinificant currency upside given 80% of earnings are USD
    4. the share price is supporte by the takeover process (multiplie bidders) at a minimum of $3.50 which is 20% above current levels. management has indicated further details are expected mid december

    Redflex speeds to big profit
    AdvertisementEmail Print Normal font Large font AdvertisementIan McIlwraith
    November 20, 2008

    WHEN the chairman's starting spiel includes teasing a fellow board member for being a Collingwood supporter, and thanking New Zealanders "for infecting me with this lurgy", there's a clear message for investors this is a company confident about the road ahead.

    Small wonder, then, that traffic camera operator Redflex Holdings' chairman, Chris Cooper, chose to forgo his sick bed to front an annual meeting where he could tell shareholders that not only are there several parties about to begin evaluating the company for a takeover, it is on track for a 40% pre-tax profit gain this year.

    It might be a product some of us are philosophically opposed to, but Redflex has statistics on its side that suggest the use of speed and red light cameras has saved lives and limbs.

    In the US, the source of more than 80% of Redflex's business, Mr Cooper concedes the battle is "cultural" opposition to using the cameras is still high, and even outlawed in some states.

    Redflex is working on the theory that the more cities and states that trial and accept the efficacy of its products, the more pressure there is on others to drop their opposition and adopt their use.

    Responding to one shareholder's question at the meeting, he even mused that the recession in the US may work to the company's advantage if authorities see traffic camera use as a way of replacing lost revenue although Redflex would always stress the safety over the monetary benefits of cameras.

    On its forecasts, which point to pre-tax earnings of more than $21 million this financial year, the Redflex board and management reckon indicative takeover offers from the unnamed groups believed to be pitched at more than $3.50 a share are way too low.

    It has acknowledged, however, that the first offers received were based only on public information, so it is giving its potential suitors a chance to look at management accounts and come back with a better deal.

    Redflex has appointed Gresham Advisory, and lawyers Baker & McKenzie, to run the due diligence process.

    Confidentiality agreements have been signed with various parties, with Redflex anxious to prevent any of its information leaking to rivals, and limited financial information will be provided for the putative bidders over the next few weeks.

    Redflex is particularly sensitive at the moment because the market for its red light and speed camera services in the US is growing exponentially and the public tender processes there are becoming more bitterly contested.

    In the past fortnight, American Traffic Solutions, the losing rival for a recently won contract in Phoenix, Arizona, has begun legal proceedings claiming up to $US100 million ($A155 million) in damages over the alleged use by Redflex of radar units without US Federal Communications Commission certification.

    Mr Cooper told yesterday's meeting that the company's legal advice was that "we have little to worry about", but it is taking the litigation seriously and is well aware it might be wielded against it in current and future contract bids.

    Redflex shares, which were heading to $2 before news of potential bids emerged, have clambered back above $3 and yesterday gained 23 to $3.28 virtually the same levels as a year ago, against a general market that has halved in value.

  6. #6

    Default Re: RDF - Redflex Holdings

    RDF has significantly revised their 2009 guidence for before tax profit, from +40% to -10%.
    This is the result of operations in Arizona not running efficiently (the result of one of their staff being killed and costly court cases)
    From this significant downgrade the SP has retracted to $2.16.
    The letter from the chairman also said that the bidders that were willing to pay $3.50 per share for the company are no longer interested at this stage.

    Despite these recent negatives, I still think positives remain since it is a market leader in it's feild and with the growth it has planned (+25% camers per year over the next 5 years) it will experience scales of economies on it's expenses.

  7. #7

    Default Re: RDF - Redflex Holdings

    Recent developments with RDF:
    -Won several more contracts in US, Aus and expanding into Dubai

    -Raised almost $50 million through a share placement and a rights issue to fund further growth and to pay down debt

    -A group of shareholders are attempting to remove the chairman and a couple of directors, citing poor performance

    Has anyone been able to look more closely at the shareholders propositions agains the directors? Will it affect the SP adversely?
    I still think RDF offers great potential growth for the future I just hope this dispute doesnt set the company back to much, hopefully it might encourage the current management to do even better...

  8. #8
    Mmmmmm 2nd breakfast Knobby22's Avatar
    Join Date
    Oct 2004

    Default Re: RDF - Redflex Holdings

    I don't think much of current management.

    Margins aren't getting better, they designed the best product on the market, most of their competitors are gone now and yet they can't seem to make decent money. I would love to see a change of management and in my opinion it would be good for SP. I for one would buy in, presently I don't own any.

  9. #9

    Default Re: RDF - Redflex Holdings

    Yeah i currently hold them and voted for the current management to be removed for the reasons you posted above. I think that RDF have a significant advantage over their competitors and they dont seem to be utilising it.
    Also, RDF's dividends are currently fully franked but i dont know how long they'll be able to maintain that since almost all of their operations are overseas.
    Will be very interested to see how the whole scenario plays out...

  10. #10
    Mmmmmm 2nd breakfast Knobby22's Avatar
    Join Date
    Oct 2004

    Default Re: RDF - Redflex Holdings

    Quote Originally Posted by bloomy88 View Post
    Will be very interested to see how the whole scenario plays out...
    Cooper controls a significant number of shares so it won't be easy.
    Even if Thorney doesn't win, I reckon the scare should be enough to get some directors changed. As you say, interesting times.

  11. #11

    Default Re: RDF - Redflex Holdings

    Quote Originally Posted by Knobby22 View Post
    Even if Thorney doesn't win, I reckon the scare should be enough to get some directors changed.
    Or even make them want to perform better in the future so that their jobs aren't threatened. I dont mind if they are able to increase shareholder value...

  12. #12

    Default Re: RDF - Redflex Holdings

    Announced yesterday that the chairman Christopher Cooper and directors Peter
    Lewinsky and Roger Sawley.

    I think that this could create more value for the shareholders in the future as RDF has underperformed the market over the past 5 years.

    The market must feel the same way as the SP is up 23c from $2.40 before the announcement.


  13. #13

    Default Re: RDF - Redflex Holdings

    Good anouncement re 100 million contract won by GoSafe, in which Redflwx has 16% interest. They are delivering a Camera Safety Programme in Ireland.

  14. #14

    Default Re: RDF - Redflex Holdings

    Quote Originally Posted by cloggs View Post
    Good anouncement re 100 million contract won by GoSafe, in which Redflwx has 16% interest. They are delivering a Camera Safety Programme in Ireland.
    Yeah another good announcement, SP up to $2.57 now. Hopefully the good momentum can continue now with the new chairman and board members.
    Return now of 26% on shares from rights issue ($2.04)


  15. #15

    Default Re: RDF - Redflex Holdings

    Huge growth today with only a couple of recent announcements re: Directors Interest increasing & positive result in the lawsuit aith ATS.

    Does anyone out there know why the Volume has ramped up and the SP has gone through the roof without notice?(up 40% today)

    It will be interesting to watch what happens in the next 48hrs ?!?
    I am not holding RDF stock just curious at the number of trades.


  16. #16

    Default Re: RDF - Redflex Holdings

    Announced today that large increase was due to 8,000,000 shares being bought @ $2.50 by a large Australian financial institution. No bid has been received by the company though.

    Up another 7% today. Another bid on the way? Who knows but hopefully the management don't drain company funds again...

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