Cassius Ventures Ltd. V.CZ.H

From Canaccord this morning

[cybertooth]

Carbiz.com Inc. (CZ : CDNX : C$1.80) Jeff Rath, CFA [phone] Recommendation: SPECULATIVE BUY 12-month target price: $4.55 52-week price range: $8.00-0.48 Shares O/S: basic 30.1M fully diluted 37.6M (inclusive of all announced acquisitions) Float (est.): 21.0M Major shareholders: Mgmt. & directors, 30% Working capital Est. $12M Book value/share: $0.41/share Dividend/Yield Nil Weekly trading vol.: 282,162 shares Market capitalization: $67.7M (f.d.) Sector: Technology - Software Web site address: www.carbiz.com * Carbiz.com (CZ) is an enterprise software solutions company leveraging its current install base to exploit the potentially very large, B2B transaction revenue streams that exist in today's retail automotive industry. * The first leg of CZ's B2B strategy includes the formation of a financial portal". Ultimately, this feature would allow dealerships and their customers the ability to receive competitive auto loan financing immediately over the Internet. * CZ's financial B2B portal platform is scheduled to go live with TD Bank/Canada Trust on September 1, 2000 and over 5,600 dealerships already in its customer base. With $10 million in cash and no debt, we believe CZ is in a good position to execute its business plan. * Since March, 2000 CZ has completed seven acquisitions with an average purchase price of 1.15X trailing 12 months revenues (see exhibit 2). Post acquisitions, CZ now has a dealership customer base of 5,600 and a pro forma revenue run-rate of C$13.7M/year. Financial Portal Strategy: "Win-Win-Win" The first leg of CZ's B2B strategy includes the formation of a financial portal". A financial portal will give dealerships and their customers the ability to receive competitive auto loan financing immediately over the Internet. We believe this strategy is a win-win-win solution (for the auto dealers, the financing companies, and the customer). Successful implementation of this platform (arguably creating one of the most lucrative B2B revenue streams) would make the addition of subsequent revenue streams much easier. Valuation and Recommendation Companies attempting to exploit B2B revenue streams typically target substantial marketplaces providing a large speculative appeal for investors with risk capital. This same potential for very large, high margin, recurring revenues makes a strong argument for applying high valuations to companies well positioned to succeed. Like any early stage industry, we believe there will be many failures from which only a few successful companies will emerge. While opinions differ, we believe investors should support companies chosen and supported by existing industry partners versus stand-alone companies that have developed a superior application. Hosted software applications (the ASP model) today allow for continual upgrades, making a superior application less of a sustainable competitive advantage versus establishing significant industry partners with vested interests in your company's success. We believe CZ is making significant in-roads in defining itself in the retail automotive industry, the second largest retail marketplace in North America second to housing re-sales). Moreover, competitive forces, particularly within the bricks and mortar financial institutions, are expected to create increasing pressure to adopt a CZ-type delivery platform for loan approvals. We reviewed the valuation of Carbiz.com from several different perspectives, including a discounted cash flow valuation, a comparative valuation (P/S and P/E) against a peer group of similar companies, and as an acquisition candidate for some of the industry's larger competitors. We believe these methods did not capture the speculative opportunity now available for Carbiz.com over the next 3-5 years. With the retail auto dealership marketplace undergoing a consolidation, vendors supplying services and products to this marketplace will very likely come under pricing pressure, similar to what the auto dealers have been facing from their large auto manufacturers. Therefore, we believe software vendors supplying this marketplace must look to expand their revenue streams in order to generate future growth (i.e., vertical growth versus horizontal). We believe that CZ's B2B strategy will be the primary driver of growth for this entire industry in the future. In order to value CZ, we have built a mature, per dealer revenue profile (see Exhibit 3). This profile includes a breakdown of individual assumptions (both from CZ's management and ourselves) for a mature revenue stream (once all B2B revenue streams have been established) expected to be fully implemented in possibly three years. Using existing industry margins and a 25% increase in shares outstanding (fully diluted), we believe CZ could conservatively be a 13.00-20.00 stock in 3-5 years. Ultimately, we believe Carbiz.com has an opportunity to generate a similar revenue and earnings profile as summarized by the above table. With $10 million in cash, no debt, the recent release of its fully hosted, Full Spectrum 2000 Internet application, its financial B2B portal platform scheduled to go live with TD Bank/Canada Trust on September 1, 2000, and over 5,600 dealerships already in its customer base, we believe CZ is in a good position to execute its business plan. We recommend shares in Carbiz.com as a SPECULATIVE BUY for growth-oriented investors and have established a 12-month target price of $4.55/share based on our expectations that CZ will take three years to reach our long-term financial profile.