Auto stocks are back in focus, thanks to the momentum in names such as Nikola Corp (NASDAQ: NKLA), Hertz Global (NYSE: HTZ) and Tesla (NASDAQ: TSLA). iGEN Network Corporation (OTCMKTS: IGEN) has been on a tear in the past few weeks in sympathy with the high flying auto stocks but also has a few tricks up its sleeve. IGEN has an IoT application that monitors auto consumer’s behaviors that provides real time updates, analysis of driver behavior, and stolen vehicle protection. The overall IoT market is projected to reach $82.8 billion by 2020 with a CAGR of 26.7%. The connected car market is projected to reach $212.7 billion by 2027 and growing at a 22.3% CAGR. These trends in the marketplace are driving innovation forward at an accelerated pace. The carmakers all want more apps to distinguish themselves from the competition. IGEN is uniquely positioned to ride the wave of 3 hyper growing markets yet remain recession proof.
Electric Car Market – Hypergrowth
TSLA is a no brainer. Although valuation does seem frothy, over the long-term investors are more likely to make money betting for and not against TSLA. NKLA, however, is a bit dicey. The electric car maker, which focuses on tractor-trailer, has been widely popular largely as a result of the CEO’s upbeat messaging. The CEO Trevor Milton has warned Ford he’s looking to outsell its popular F-150 pickups. However, once reality sets in, the shorts could make a lot of money on NKLA, which seems to have gotten ahead of itself. The same applies to HTZ. Its bankrupt and the balance sheet is controlled by creditors, meaning investors who stake their money for the long-term are likely to get burned.
Connected Car – Insurance Apps
Usage based auto insurance is where insurance quotes are generated based on recent driving history rather than demographics, age and location. The insurance company installs a tracking device on the car or provides a smartphone app that monitors the driver’s behavior (for example noting if the driver engages in hard braking, sharp turns and flooring the gas pedal). The data that is collected is used to generate a quote that gives a fairer representation of the risk. This can translate to lower premiums and other discounts, assuming the driver’s behavior merits this.
More insurance companies are embracing this model, including the larger ones, because an insurance quote based on recent driving history is both good for the insurance company and the policy holder. Users get a discount, but insurers get policy renewals. In insurance, the big money is in the renewals, since a user is less likely to shift to another insurer if they renew their original policy at a price point they see as a bargain.
Progressive Corp (NYSE: PGR), one the largest insurers in the U.S., offers its customers discounts based on their driving through “Snapshot,” an app that tracks users driving and offers discounts to safe drivers. The app works in the background of your smartphone.
Root Insurance, a privately held auto insurer, uses technology in smartphones to measure driving behavior such as braking, speed of turns, driving times, and route regularity. Root determines who is a safe driver and who isn’t. By only insuring safe drivers, Root can offer more affordable rates. In a CNBC feature, Root says that its customers can get rates up to 52 per cent lower than previous insurers thanks to the usage-based insurance model. Tellingly, though private, Root Insurance is now valued at $3.65 billion after a $350 million funding round last year, the largest single venture capital round ever in the State of Ohio at the time. The 4-year-old auto insurer has raised a cumulative $523 million in VC and another $100 million in debt, underlining the investment appetite in the usage-based auto insurance space.
Importance of IoT
IoT, in its most basic definition, simply refers to a computer ecosystem with devices that can transfer data over networks to other devices without the need for human-to-human or human-to-computer interaction. One way of looking at IoT is as a type of Internet where, instead of two or more humans sitting on either side of a laptop or phone sending and receiving information, it is machines doing that to each other via other machines.
In many ways, IoT is the precursor to prevailing currents of thought in high-tech areas like Artificial Intelligence and Machine Learning, where the size of the opportunity in monetary terms could be as much as ten times Microsoft (MSFT), according to Bill Gates as quoted on Forbes magazine .
“If you invent a breakthrough in artificial intelligence, so machines can learn, that is worth 10 Microsofts.” — Bill Gates, as quoted on Forbes.
IoT continues to witness spectacular growth. Researchandmarkets.com, in its just released Global Internet of Things Market Insights Report 2020, notes that the sector worldwide could post a 31.4% compounded annual growth rate, growing by $876.5 billion.
The report states that the widespread availability of smartphones, tablets and the declining price of connected devices rank as some of the key factors driving adoption of IoT. According to QYResearch, the global IoT market is expected to reach $1 trillion by 2025, with 5G networks expected to play a key role in unlocking this value.
In view of its healthy growth outlook, the IoT space presents a great investment opportunity for investors currently looking for dependable bets in high growth areas within tech.
iGen Core Business – Recession Proof
IGEN, which is a fully reporting company in the U.S. and Canada, is in the recession proof business of vehicle tracking and fleet management, serving both businesses and individuals across the U.S. However, just because the underlying business is recession proof doesn’t mean it’s not lucrative.
Organizations and individuals that use vehicle tracking and fleet management services regard them as essential services and have no problem paying via subscription, putting IGEN in a very favourable position in terms of the relative ease of generating new revenue.
The company operates under three distinct brands.
- “Nimbo Tracking” which focuses on real-time GPS tracking solutions for new and used car dealerships. Car tracking for an auto dealership is an essential service, just like insurance, meaning customer retention is strong in the sector.
- “CU track” which focuses on tracking solutions for credit unions and other financial institutions. Today it is normal for financial institutions that offer auto loans to install a tracker in the vehicle as part of the loan agreement. Every auto loan that is approved is literally a sale booked for companies like IGEN, since car tracking is now a standard requirement for loan approval across the asset finance industry.
- “Medallion GPS Pro” which focuses on tracking solutions for commercial fleet owners. The platform allows fleet owners to also manage their assets and monitor their drivers to ensure they are behaving in a way that promotes the security and safety of the assets and their own personal safety.
In terms of operations IGEN is in a good space. Its customers, who are largely auto dealers, financial institutions, and commercial fleet owners, see the services it offers as an essential service. They pay via subscriptions, with some of them signing multi-year deals and a good number of them renewing these deals – car tracking service providers are essentially like lawyers; you only change them if something has gone terribly wrong.
IGEN’s services are all cloud-based, meaning it is by default a high margin business. For the year ended Dec 31, 2019, the company reported a 41% gross profit margin in its 10-K. This means for every $100 it made in revenue, $41 stayed in the business. However, this impressive gross profit margin, and the halving of net losses to $479,073 compared to $1,175,320 in the previous year, were the only positives in last year’s financials. During the year, revenue was down 40% to $723,819.
The slump in 2019 may be a point of concern for investors but there are strong indications that this trend could be reversed this year. The company is on an ambitious sales drive that could fundamentally shift its fortunes going forward, underlining the huge upside potential in the stock.
Strong rebound in sales
CU Trak, the product line focusing on GPS tracking solutions for credit unions, is off to a strong start having been launched just last year. IGEN recently signed a sales and marketing agreement with Michigan Credit Union Service Corporation, a wholly owned subsidiary of the Michigan Credit Union League, one of the oldest and most established trade associations for credit unions in the U.S with roots in the pre- World War II era.
“MCULSC’s partnership with IGEN gives us an exciting opportunity to continue providing the relevant products and services Michigan credit unions need to be successful,” said MCUL & Affiliates CEO Dave Adams in a joint press release. This deal gives IGEN an opportunity to grow its CU Trak customer pipeline in Michigan through MCULSC’s network, which includes all the leading credit unions in the State of Michigan.
During last year’s launch of CU Trak, the company secured orders from Puerto Rico based Credit Unions and the Organization of Americas, suggesting warm reception by the market and the possibility of similar success in Michigan where the agreement with MCULSC presents an immense opportunity to access even more credit unions.
MCUL has over 5.3 million members represented. CU Trak, which is sold via Sprint’s IOT factory, is priced at $399, indicating the incredible sales potential this deal presents. If IGEN converts just 10,000 members, which realistically shouldn’t be a tall order considering it is riding on the expansive network and strong influence of MCUL, it will generate sales of at least $4 million in the course of this deal. This deal essentially presents a real chance to grow the business around 10x from 2019 sales. This potential doesn’t seem to be fully priced into the stock, the current bullish run notwithstanding.
Another deal that could have a huge impact on sales is the recently signed three-year exclusive partnership agreement with County Executives of America, which represents over 700 counties across the U.S. Through the deal, IGEN will offer Medallion GPS Pro, its fleet tracking and management solution, in all 700 counties where County Executives of America has jurisdiction. CEA, on its part, has endorsed Medallion GPS, opening a path to new business for IGEN in the public sector.
“The Counties and Consolidated City/Counties have some of the largest fleets of automobiles, trucks, motorized equipment and school buses in the United States. The care for this equipment is a very large expense to the taxpayer and it’s our duty to help secure and maintain these valuable assets,” said Michael Griffin, Executive Director of the County Executives of America.
According to IGEN CEO Neil Chan, the deal with County Executives of America presents an opportunity to bring Medallion GPS Pro to an “estimated 350,000 assets.” This is of course a highly bullish outlook that assumes IGEN will be able to convert the entire addressable market presented by this deal, which is unlikely.
A more reasonable conversion rate would be 50%, which with an addressable market of 350,000 assets, works out to 175,000 assets. This is still a good number by any measure, considering the subscriptions are on annual basis and the deal runs for three years.
Medallion GPS Pro is particularly promising in view of the fresh investments by major players in fleet management. Ford (NYSE: F) is the latest to augment its offering in the fleet management space. It recently launched FordTelematics, a web-based software platform and subscription service designed to grant fleet managers easy access to important connected vehicle data. This will help commercial vehicle customers optimize their fleets and make them even more efficient. Competition is good for IGEN because it shows there is sustained demand for web-based fleet management services.
IGEN’s sales outlook is highly promising and it is likely that it will record a strong rebound in sales this year in view of the strategic partnerships it has in place with CEA and MCUL, as well as pre-existing plans to broaden its sales channels beyond telecommunications company Sprint, its main sales partner. IGEN last year contracted two new distributors (REMCOOP and Wireless Business Consultants), meaning its customer pipeline will expand beyond what it had last year. With its high gross profit margins, a boost in sales will translate into more cash staying in the business, creating shareholder value and attracting long-term investors. Long term investors are good for a stock because they buy and hold more than they sell, creating value for all stockholders.
Usage based auto insurance
Longer-term, the real opportunity for IGEN appears to be in usage-based auto insurance. IGEN already has credit unions as its customers. This vital inroad into the financial services sector may give it a real opportunity to sign up insurance companies as its clients. Last year, IGEN took ownership of a patent for measuring and scoring driver performance and behavior. This patented technology is useful for fleet owners who want to promote driver safety. It also competitively positions IGEN in the fast-growing usage-based auto insurance space.
IGEN can make a mark in the usage-based auto insurance space through its patented technology for measuring and scoring driver performance and behavior. Its technology doesn’t need the driver’s smartphone to work, which is a good selling point considering the privacy concerns that come with collecting drivers’ data over their smartphones. The partnerships it has with financial institutions should provide a good entry point into this promising market. Investors should look out for news and updates on this patented technology.
Massive Insider Purchases
The insider buying by the CEO and his VP, as well as the CEO’s own track record make it a good speculative play. while his VP, Abel Sierra, bought 10 million shares at the same price. At current prices the stock is up 72% from the price the two executives bought it, highlighting the bullish momentum these big transactions have triggered in the market. Neil Chan is an ex Motorola Managing Director and career technologist with over three decades experience. He is credited with bringing a startup to $400 million in annual revenues in 3 years.
Some investors see insider buying as a strong buy signal. Usually, insiders who buy stock must wait at least six months before selling their stock, making it improbable that a CEO and other top executives would buy stock in large quantities and submit necessary regulatory filings without well-founded optimism about the company’s near-term and longer-term prospects.
IGEN has cleared most of its convertible notes from last year and is sitting with 717 million shares issued. They are authorized to issue 1.49 billion shares but it seems like their need for capital has quieted as they shift toward large revenue growth. With the threat of dilution diminished investors have found the courage to step back into this name following in the footsteps of the insider buying. IGEN’s core business is recession proof yet it has great prospects with respect to revenue generation in view of its subscription model, its innovative products and the strategic sales and marketing agreements it has signed so far. Its patented technology for measuring and scoring driver performance and behavior could also unlock new opportunities in the lucrative usage-based auto-insurance space in coming years. This stock is being lifted by three hypergrowth sectors, large insider purchases, and top line revenue growth.
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