Connexion is an interesting little business and one that I probably would never have either, come across or looked twice at if it wasn't for this platform. @TEPCapital (not sure if he is still around) did some really good work on this a year or two ago and then we had a CEO interview last year which was informative. @wtsimis did a good summary of the recent half year results, which have continued into the recent quarterly. The stability of the earnings in this business really are impressive.
The big risk is customer concentration as they are almost entirely dependent on General Motors, and initially this was enough for me to stay clear, but having watched how this dynamic works I am less concerned about this risk, although if anything changes at GM then this would seriously impact CXZ. The GM contract will be up for renewal again next year but this is now a long standing relationship and this will be the 3rd renewal, and I think this is more of a partnership than a dependency type setup. The other reason I have less concern about this risk was the announcement in Jan 23, about how GM would now pay to have the CXZ software rolled out to all of its dealerships where as previously it was the preferred supplier this boosted ARR by US$3m. There is good detail on all this in the straws but I can't see why they would terminate the partnership if they see value in what CXZ is providing which they clearly do. A negative is that they have struggled to penetrate the non-GM dealers.
What I have been impressed with is the management team, they have very clearly articulated hoe they see the priorities of the business and how they are tracking their progress against these. Its worth checking out the quarterlies on how they are measuring return on growth spend and maintainable earnings. It is refreshing to have a CEO that spells out their metrics and holds themselves accountable to these measures. These guys aren't going to burn cash on unproductive ventures or dilute the share base. Management competency and trustworthiness gets a big tick here for me.
The interesting news recently was the launch of a new product. Given that CXZ is generally pretty conservative in the way they release things I thought this announcement was interesting. Basically they have partnered with a Global ride-share company to provide a dealer shuttle service called Connexion OnDemand. Its a pretty clever initiative to remove a cost and hassle from the dealer side and outsource the shuttle service to a third party. The details were light as it will launch next quarter, but the gist I got from listening into the quarterly call was that they are pretty excited about the potential of it.
At the current 2.9c mark I think it is valued at the status quo with minimal growth expectations. This isn't going to spit off free cash for a while as most of the earnings are being put back into the business and product development, which I think is the right decision, if you want a dividend buy a bank. The important thing for me though is that this product investment is coming from cashflow. This is a $3-3.5m NPAT business with a market cap of $26m. The secret sauce here is the competent management.
@Strawman it would be good to get Aaroyn back on for an update later this year.
