RA International, incorporated in 2004, began trading on the Alternative Investment Market (Aim) at the end of June after raising $22.9m (£17.5m), net of expenses. Funds raised boosted net cash fourfold from the 2017 year-end, but it wasn’t all about shoring up the balance sheet. Management, headed by RA’s founder (and principal shareholder) Soraya Narfeldt, believes the London listing will raise the corporate profile, while promoting a “customer multiplier effect” through enhanced up-selling opportunities.
Why a listing on London’s junior market might impress a non-government organisation (NGO) isn’t immediately obvious, but it’s integral to the certification process employed by many companies in the private sector when they’re putting contracts out to tender. The group also needs to build its fixed asset base if it wants to scale up its operations, particularly as it is intent on pursuing further opportunities outside of the conflict and humanitarian environments.
Over the past decade or so, the latter has entailed the successful completion of projects in Afghanistan, Chad, Senegal and Tanzania, while operations continue in South Sudan, Mali, Syria, Ethiopia and the Democratic Republic of the Congo (DRC). That list certainly isn’t exhaustive and it recently secured a $30m, five-year contract for the electrical works and construction of power infrastructure for the United Nations' (UN) support office and African Union Mission in Somalia.
The UN remains the key client for the group, so it’s unsurprising that both Soraya Narfeldt and husband Lars, who is also RA’s chief operating officer, both have extensive contacts and experience within the organisation. Indeed, Lars Narfeldt has been directly involved with UN projects in the DRC, Uzbekistan, Sierra Leone and Afghanistan.
It was this experience gathered over many years that brought the Narfeldts to the conclusion that NGOs and government agencies working in far-flung, often inhospitable environments would benefit from a fully integrated service offering. But the practicalities of setting up infrastructure assets in remote locales goes way beyond identifying the right suppliers and training local workers; there are also cultural, ethnic and religious sensitivities to take on board. Again, the couple’s extensive hands-on experience can be brought to bear, but it means the business relies on the Narfeldts’ intellectual capital, which from an investment angle gives rise to key-person dependency risk.
Fundamentally, the business appears to be in decent financial shape, with all the basic metrics pointing in the right direction. Revenues increased from $21.1m to $53.3m over the past three financial years, and there has been an accompanying rise in the gross margin, which has expanded from 27.5 per cent in 2015 to 42 per cent at the latest half-year results to June. Net earnings have demonstrated an even greater rate of increase, coming in at $13.7m for 2017. A potential bugbear for investors, apart from a lowly free-float of 20 per cent, is that cash flows tend to be rather lumpy, a point readily acknowledged by Ms Narfeldt. The cash conversion rate also tends to oscillate, which may seem odd given the client base, but management said that trade receivables don’t wax and wane as much with the large-scale, multi-year agreements that the group is targeting post-listing. The latest Somalian contract provides a case in point.
