• Covertrue investment - I'm not overly excited about this overall. Seems like CEO using their previous fund manager experience. Is Connexion focused on core business or will other investments like this be made? Notes in quarterly that Connexion is actively interested in M&A so this type of buying may continue.
• Priced on an EV/P of less that 4 so continues to be very cheap and buy back shares at that price.
• Not much else to note besides revenue and subscriptions continuing to grow QoQ:

Will continue to hold. Covertrue is a relatively small investment. Connexion is a small holding as well. Still a value play given the very low EV/P ratio. 

Overview Comment:

Thesis playing out as expected. Connexion Mobility is gradually increasing revenue and profitability each quarter. Back stopped by a large cash pile and buying back shares. Will remain a small position, however, will increase in size.

General notes:

• Revenue growth 3% QoQ.
• Repurchased 18.7m shares during quarter at an average price of 2.5c.
• Main metrics continue to slowly trend upwards:

Positives:

• Diluted EPS for FY = 0.263 US cents = 0.40 AUD cents.
• Cash/investments = $5.9m US = $9.0m AUD.
• Subscriptions continuing to grow every quarter:

Negatives:

•  No indication of success with other OEMs.

Has the thesis been broken?

• No, as expected. Still very cheap and keeping as a small position for risk management due to the knockout factors of the investment.
• Meeting all key investment KPIs of increasing revenue, continued buy backs and improving profitability. Will add to position.

Valuation:

Based on EV/NPAT = 8X. Valuation = $2.1m X 8 (EV/NPAT) + $9.0m (cash) = $25.8m MC or 3.2c per share.

What are you expecting and what do you need to see over the next reporting season or generally into the future?

• Continuing to grow revenue and EPS.
• Continued buy backs.

Overview of Thesis:

Connexion is a small software company providing software to manage courtesy transportation for car dealerships. Currently GM is their main/only customer and is a significant risk to the business, however, this has always been in a way a partnership.

The purchase of Connexion is based on a value play with potential upside for any additional growth. At an EV/NPAT of approximately 5x, Connexion is providing a 20% owners earnings yield. The investment comes with significant risks, therefore, only plan on taking a 20% of full position to begin with and then slowly add over time as conviction is built. A rug pull by GM would end the business, however, given the time and effort already put into the relationship I put this at a very low probability.

Connexion has an active capital management strategy to buy back shares. Without this prudent capital management, I probably wouldn't be buying.

Customer Value Creation:

End customers the dealerships are provided with a courtesy transportation software tool while the OEMs are able to have oversight of aspects of courtesy transportation.

Positives:

• Cheap valuation
• Core customer
• Book value makes up a significant portion of share price providing a floor to potential losses.
• CEO appears very competent and focused on return on capital for any investment. IE not going to throw money at growing the business for the sake of growing.
• SaaS business model.

General negatives/Risks:

• Concentration risk - GM could not renew or only renew on their terms. Connexion is basically wholly reliant on the revenues from GM.
• Management risk - CEO Aaryn Nania seems like a very genuine character that understands the business and capital allocation. Him leaving would be a big red flag.
• Inability over time to sign on other OEMs. The company is current fragile with the GM contract concentration risk so over time needs to reduce this risk.
• The potential reduction over time of car dealerships.
• Unable to execute on growth. Company still appears to be in the discovery phase of what the right product is especially in terms of "extras" they can monitise. If they can't find extra ways to grow revenue and expand from GM then they are very venerable.
• CEO Aaryn presented very well on Strawman. Therefore, generally have a favorable opinion which may be incorrect.

Probabilities of outcomes:

Valuation based on probability of outcomes = 3.85c:

• 10% - GM cancels contract. Connexion stops business, cash returned to shareholders. 0.5c shares.
• 20% - Lower profitability with 5x mutliple maintained. 1.5c shares.
• 60% - Profitability remains the same and GM contract renewed.  3.5c shares.
• 20% - Significant growth in revenue and/or new OEM signed up. 7c shares.

Investment KPIs:

• Incrementally increase revenues
• Continue to buy back shares at cheap valuation
• Improved profitability over time.
• Increase number of products and revenue opportunities.

How I expect this will play out:

• Relatively flat share price or gains due to buy backs.
• GM to extend contract when

When to get out:

• CEO leaves. Seems to have owner attitude.
• GM contract is not renewed.
• Revenue moves backwards.
• Clear that they will not be able to increase number of OEMs and GM has reached it's limit in case of sales.
• Unable to execute on growth avenues.