IIR Initiates Coverage: 4.7c price target (DCF base case), page-75

I believe that the CXZ-GM contract will be renewed on similar or improved terms and conditions.

My rationale/evidence for arriving at this conclusion is as follows:

1. Although GM could switch to a competitor, they have built an enduring connection with CXZ over many years and trusted the CXZ team with a multitude of custom updates etc. - this relationship is getting more entrenched with every month.
2. CXZ pricing is approximately 50% cheaper than alternatives - it is the most cost-effective solution on market. If you reverse engineer the OnTRAC charge per vehicle/month, you will find it is about $6 ($6.08 to be exact). This compares with the low end of the competitor range at $10/vehicle/month (Dealerware) and $13/vehicle/month at the top end of competitor pricing (TSD). CXZ's solution is by far the most economical and they have a little bit of pricing power here to play with, given pricing has been set so low and not moved historically.
3. CXZ's team has fought off competitor offers historically on the basis that they are more adaptable, deliver higher quality and are fast to implement custom updates for General Motors.
4. CXZ is solutions integrated with other GM partners, which make this current arrangement difficult to untangle
5. The transition cost to GM to move in-house or shift to a competitor is high, most notably in terms of time, development, training, roll-out, support and in the uncertainty of output/results from an alternative option

Any news that influences the timing, certainty or duration of future cashflows for a business will influence its share price. It therefore follows that the renewal announcement will catalyse a re-rate in the share price. At an EV of merely $10 million AUD, this renewal is not yet priced in, I believe the market is pricing the situation as if there is a 50% chance of GM renewal.

If I had to guess, I would say that we will see the share price at least above 2.4c when this news eventuates. The share price could go as high as 4-5c on this news depending on the specifics of the T&Cs of the deal and depending on whether holders like what they see and want to hold their shares tightly or not, for longer-term rewards.

T.E.P.