Regarding all the CXZ queries. Bias aside. Couldn’t sleep so wrote this up.
Current profitability,cash flow & balance sheet
Whilst I haven’t seen much (if any) criticism with regards to these points, it is still worth mentioning. The company is highly cash positive, it has a gross profit margin of ~ 40-50% and basically no liabilities! This is rare for a small company and a stock trading at this size. Lots of companies at this level are mining explorers or tech start-ups which don’t know what a profit looks like. Hell, Afterpay hasn’t made a profit and that stock is valued at $90. We do however, need to keep in mind stock dilution. We have almost 1 billion shares on the market, that is sizeable and will make the price more challenging to climb. If we had ¼ of the shares on the market, the corresponding share price would be 10.8c which imo is very cheap. Very large, established tech companies can bring in large revenues and still struggle to bring in profits. They do bring in larger revenues though.
We doneed to keep in mind in the long-term tax benefits will not be there for muchlonger as this is now profitable. However, by that time, you would hope thecompany is generating > $2m PBT without tax benefits.
Reduced Subscriptions
Whilst we have seen a reduction of subscription revenue and it has been stated, the length of these reductions is not highlighted, which can be a cause for concern/optimism. It could be likely based on reopening of economies, etc that the subscription volumes begin to increase again, we could bring in new customers, we could create another partnership, only time will tell.
In my opinion, to reach $8m of revenue again for FY20, we will need to see lots of customised work as last year custom work generated approx. 18% of the revenue ($1.55m/$8.2m). Demand for custom work certainly died off in H2 with Q4 not showing much increase for demand.
Quarterly custom work revenues.
Q1 – $316k
Q2 – $669k
Q3 – $274k
Q4 – $287k
It should also be noted that the reduction in subscriptions without an increased customer based is likely to lead to a reduced demand in custom work. Based on guidance, at levels of ~ 414k to 434k of RPM (revenue per month) we are looking at $5m - $5.2m of subscription revenue. 20% customised work at this level will mean approx. $1m of customised revenue at the current rates. The reduced subscriptions will automatically reduce bottom line NPT as the work is high margin which converts to bottom line upside.
P/E Ratio
A P/E ratio of 7-8 for this company is quite reasonable all things considered with its past performance on share price and forward outlook, if we reach $2m of NPAT this will be a P/E ratio of ~11 to 12 at the current share price, SG Fleet trades at a P/E ratio of 13, it does however pay a divvy of ~ 5% FF (full-franked) yield. I do believe the P/E ratio should sit between 10-15 personally, tech companies do not normally sit at levels this low. It has a very healthy op cash and balance sheet too.
NOTE THE P/E RATIO IS NOT ARELIABLE INDICATOR OF MARKET VALUATIONS, THE P/E RATIO REFLECTS THE FUTURE EXPECTATIONSOF THE MARKET AND HOLDERS/BUYERS. IT IS PRICING IN A RATIO OF 10-15 P/E RATIOBASED ON NPT. CALCULATED ABOVE.
Reliance on one largecustomer
Yes, this stock is heavily reliant on GM which can be a cause for concern, as noted with the large reduction of subscriptions as a result of only having one customer. However, this is a small cap stock in early stages of growth and expansion. It is not uncommon for small caps to have a reliance on one large customer, this has been clearly priced into the stock price and market cap.
This presents potential upside to the stock through the ability to bring in new partnerships which will increase subscriptions and respective customised works.
Lack of CEO
The lack of CEO should be a good indication of the potential of this company, as stupid as it may sound, this company has been able to remain profitable through the lack of a full time CEO and has delivered a very strong FY20 result, despite covid. This should highlight the profitability of the company; a new CEO would certainly push this company in the right direction, particularly if the CEO is well known.
Large share disposalsfrom insiders
Yes, this can be concerning, however, some food for thought.
Aaryn acquired his holdings on September 19 when the SP was $0.007! He sold 11% of his holding at $0.03, 428%, profit taking of this nature is normal. He probably kept ~ $460k of profits. He still holds 160m shares (pre change of notices).
Mark also acquired his shares in FY18, on the 27th November at $0.0104. He sold at close to $0.03, again, taking profits. All things considered, there is still plenty left for them combined the directors hold 200 million shares, 23-24% of the stocks on the market, Aaryn is holding 160m, this to me suggests that they were cashing in profits for personal gain and are still holding large values themselves. At the current share price Aaryn is sitting on $4.5m and Mark is sitting on $684k.
In the long term, this could grow into big profits for them, kinda jealous.
Why am I holding?
I am bullish on this stock for the following reasons. At the current level, I believe the stock has large support and should not move too much from my buy in price at $0.029. The announcement of a new CEO will have a large impact on the valuation of the stock, there is a large potential for an increased customer base which I am hopeful will grow soon and hence, push the share price up to maintain a better P/E. This will be a long hold for me, I am optimistic about the future of this company and I am patient to wait for big gains. I don’t need the cash anytime soon. One new big partnership would be huge, expansion further into the GM consolidated group would also be massive, and not unrealistic.
I am very keen on the news that presents itself surrounding a CEO, partnerships and the new substantial holdings. I am very keen to see if the directors have picked up anymore shares, and whether any instos are now substantial holders. This may impact my decision as well.
