With the Q1-FY21 results released recently (showcasing a balance sheet that continues to strengthen, stabilising subscription numbers and ongoing cashflow positive operations), investor attention now turns to the
upcoming AGM on the 25th of November.
Despite a difficult past, I personally believe that the company has a massive and bright opportunity lying ahead of it, which could translate to multi-bagger level returns from the current share price. From what I am aware, the relationship with GM is stronger than perceived by the market (and growing) and working relationships are being built with key parts of the ecosystem (DMS, Insurers etc.).
It is worth touching on this past; Connexion has really turned a corner as of the last few years (FY2018 onwards) from a company with struggling cashflow and a lack of execution ability to a company with strong finances, a highly valuable product and lean execution. Cash burn historically peaked at -$7M per year. Yet, transformation was successful with the original board replaced alongside the original founder and non-core staff a few years ago. In addition, capital was injected, and the balance sheet was successfully cleaned up. The current operations are now incredibly lean and strengthening. EPS has been increasing year on year. What’s not to love?
From what I have observed, the current acting CEO, Aaryn, is detail orientated and has been instrumental in building out a clear and achievable short, medium and long term growth strategy for the company, which I expect to hear more about at the upcoming AGM. Having spoken to him, I think Aaryn is an asset to CXZ in whatever capacity/role he ends up in. However, the company needs to nominate a strong, experienced and hungry leader as its future CEO. There is a substantial upside, if executed decisively.
There are a few aspects of this company that I (and I suspect the Fund Management world) are potentially apprehensive about and will wish to see rectified before the company can really re-rate to what I deem to be fair value levels (5c, ~$40M MC) and beyond. I am coming at this from an investor perspective after speaking to as many investors and shareholders as possible to get their views.
Firstly, as of the 2nd of October 2020, Mark Caruso stepped down from his role as Chair and Director of CXZ due to criminal charges. “Controversial Australian mining boss Mark Caruso, who is suing South African lawyers and environmental activists for millions of rands, is facing criminal charges at home of assault, aggravated home burglary and trespassing.” (https://www.groundup.org.za/article/sa-linked-aussie-mining-executive-trouble-law-home/)
From what I have read online (see links below), although I recognise that Mark has contributed in the restructure and recapitalisation of the company, I believe that it is for the best that he has moved on, as I am personally not comfortable with his involvement in the company given the allegations that have been made against Mark in the media regarding "bullying, harassment and criminal charges". Regardless of whether these allegations are true or not, the unfortunate reality is that perception of this is a real problem from the perspective of retail and institutional investors. (https://medium.com/johngiclarke/behind-the-irony-curtain-blood-diamond-xolobeni-and-the-real-story-of-mrc-6a626c9c2913) (https://www.groundup.org.za/article/controversy-follows-colourful-australian-mining-magnate/)
Secondly, both of the other directors Mr Peter Torre and Mr Robert Downey appear to have connections to Mark Caruso (for example, Mr Downey has been providing legal services to Mark) and I suspect Mark will still have involvement in the company (from behind the curtain) for as long as Peter and Robert remain on the board. I note Peter also sits on the Board of Mineral Commodities, where Mark remains CEO despite resigning as Chairman. I am not comfortable with this either as Directors should be acting independently and in the best interest of the company and all of its shareholders.
Personally, although I recognise the contribution of these two individuals over the past few years and the fact that their compensation is modest, I would like to see a new refreshed board team as CXZ enters the next phase of its journey and begins its growth spurt. I would like to see Directors with deep technology expertise on the board. Both Mr Torre and Mr Downey will be going up for re-election at the AGM in a few weeks’ time. Every shareholder will have to come to their own conclusion as to whether they will vote FOR or AGAINST the re-election of these two board members. Votes can be submitted or changed up to the date of the AGM on the 25th of November. Personally, I have put in my vote and will be voting AGAINST the re-election of these two individuals for the reasons discussed.
Market perception of the company is extremely low right now, partly for the reasons discussed above – this is why the current valuation is so astonishingly cheap. Once these matters are addressed and the risk peels away in the eyes of investors, I think the share price will rise surprisingly fast. One might be surprised at how fast things can change when a company has a catalyst like this and undergoes a multiples re-rate off a particularly low base.
There is a major opportunity here for CXZ once this company undergoes a few final changes that take it from a once unloved and unstable company into a strong business with highly regarded leadership, at the board level and executive level, that the investor community can one day view as a market favourite. The AGM is one of these turning points… If the company can refresh the board and tick this final box… institutional investment (which is lacking) will likely follow.
Ultimately, I think 5c+ ($40M+ MC) is not far away at all, but there are a few important stepping-stones on the journey that need to play out before this vision becomes a reality.
I will be watching with interest.
T.E.P.
(20min delay)