Still holding my full position here; I will continue to until a) the investment thesis breaks, b) the stock is no longer undervalued or c) I find a considerably more compelling idea elsewhere.
The global semiconductor shortage is obviously continuing to have a material impact on the business with a further decrease in dealer inventory this past quarter due to the global semiconductor shortage. All evidence suggests the world will see a gradual recovery (from a very low base) in inventory levels at some point in 2022.
Given that macro/industry context, CXZ's performance continues to be very solid. Gross profit of $605k USD (Q2 FY22) increased 13% on the prior quarter and is the second-highest in the history of the company. The quarter was again cash flow positive.
Moreover, net cash (& investments) is now at an all-time high at $2.6m USD ($3.72m AUD). The cash balance is so strong that CXZ is launching a cash strategy of investing in a selection of AUD denominated managed funds. I don't mind this approach to cash management in the manner they are attempting it.
I fully expect the semiconductor shortage to ease in time, which should improve dealer inventory levels and subsequently return CXZ's subscription-based SaaS revenue to more normal levels (OnTRAC). That will, in turn, allow CXZ to reach a new all-time new high in revenue and gross profit (boosted by recent CXZTRAC revenue, which has been offsetting some of the rev declines).
Potential risks to my investment thesis include the decline of CXZTRAC revenue once OnTrac revenue returns, ongoing delays in the ability of CXZ to find an additional OEM partner, and/or a non-renewal of the GM contract in 2026, which I consider highly unlikely (as I did in 2021 when trolls continued to suggest on HC that the contract would be lost).
CXZ remains among the cheapest profitable stocks on the ASX ($10.56m MC, $6.86m EV at 1.2c) as a result of a sloppy shareholder register, a lack of interest from institutional funds and customer concentration risks.
If I am perfectly honest, I would also add that while Aaryn is an impressive operator, he is not the archetypal outgoing and relationships driven individual, which makes it hard to drum up investor interest. I think Aaryn would agree with my assessment and I by no means mean to be critical of him: every person on this planet has a unique set of strengths, and we must play to what we are best at. I believe in his ability to generate shareholder value here.
I'd like to see Board Director Greg Ross take skin in the game with an on-market purchase (the other board directors already do) and CXZ to commence a share buy-back programme while these c.$10m market cap valuation levels last. I've communicated both ideas to Aaryn Nania.
My CXZ average entry price (aep) is well under 2c, and I would be accumulating at current prices if it weren't for my outsized position here already.
I continue to wait.
As do the number 1 and number 2 shareholders, Nick Kephala and Tom Kent, who collectively own 15% of this company.
"[There] is the need for patience if big profits are to be made from an investment. Put another way, it is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens." Phil Fisher
CXZ Price at posting:
1.2¢ Sentiment: Buy Disclosure: Held
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