Yahoo Finance
July 17, 2024
Q4 2024 Data (Year end: Mar. 31th)
Price: $7.80. Shares: 13m, Cap: $102m.
1. Business
(1) History
(1) History
The company was founded in 2014 by Roy Sebag. It is originally called BitGold Inc. It is a company that tries to monetize gold as currency. It was IPOed in 2015 through a reverse merger. In 2015, BitGold acquired GoldMoney for $52m all in stock. GoldMoney is a gold and precious metals vaulting business founded in 2001 by James Turk and Geoff Turk. Soon BitGold changed its name to GoldMoney Inc.
From 2016 to 2019, the company acquired Schiff Gold, and Mene, entering crypto trading etc. However, none of them seems to be successful. Schiff Gold has been sold back to its original owner. Mene has been spun off and became a publicly listed company. Crypto trading has been discontinued. The main metal trading business didn't grow its asset bases during those years. The trading volume seems low as well. As a result, the company burnt around $30m in cash in those years.
Since 2020, benefited from the Covid shutdown, its trading volume is up. Also, the company implemented minimum storage fees, inactive and dormant account fees, etc through the years. It started to make money. For the four years period, it had made over $50m. However, because of the high fees and the discontinuing of the prepaid card. Its managed assets started to outflow. By the end of fiscal 2024, gold under its management lost by 30% from its peak, and silver under its management lost by 20%.
In fiscal 2024, as the interest rate gets higher, the company shifts its precious metal holding to real estate. It bought 3 properties in the UK and generated around $6m in rental. It also incurred 40m in mortgage debt. It is expected to generate more rentals in fiscal 2025.
(2) Product & Services
1. Precious Metal Segment
Trading commission:
0.5% of the value of the metal that is traded. This revenue is highly tied to trading volume. Before 2019, the company counted the value of all the metals that had been bought or sold as revenue. Since 2019, it has counted the value of all the metal that has been bought plus the commission it got when customers sell the metal back to the company and other commissions as revenue.
Storage fee:
Gold: 0.12% to 0.20% per year depending on the vault location. The cheapest are London and Zurich which is 0.12%. It doesn't make sense for anyone to choose other high-fee locations. It introduced a $10/m minimum storage fee in 2020 if the calculated storage fee is lower than $10. This makes anyone who holds less than $100,000 in metal pay higher than a 0.12% storage fee.
Inactive fee & Dormant fee: 1%&0.75% annually.
Before 2024, the trading commission was counted in revenue while all the fees were counted separately as fees. Since 2024, all margins and fees have been counted in revenue.
2. Real Estate Segment
Currently, it owns 3 office buildings in the UK.
3. Discontinued and other
Schiff GoldNov 14, 2016, It acquired Schiff Gold LLC (“SGL”) from Peter Schiff for 1,063,000 common shares of Goldmoney plus some warrants. Schiff Gold was founded by Peter Schiff. It sells gold and silver coins and bars etc. On September 26, 2023, SGL was sold back to Schiff's for 212,600 shares( after a 5 for 1 split), and all the warrants were issued in 2016.
Mene was founded in 2017 by Roy Sebag as well. It aimed to enter the jewelry segment. The company soon acquired it with stock. In Oct. 2018, Mene was spun off and listed on TSXV through a reverse merger. XAU soon distributed 4m Mene B shares as dividends to its shareholders. Currently, the company still holds around 36% interest in Mene. The market value of its Mene shares is around $10m.
GoldMoney Prepaid Payment Card
Crypto Trading
It was launched in Nov. 2015. The purpose of this is to make the gold holding act as a back of the user's daily cash usage. It was discontinued in 2020. I guess it is related to regulatory issues.
It entered crypto trading briefly which it trades crypto the same way it trades precious metal. It discontinued it in 2019.
(4) Employees
35 employees in 2016 and 27 employees in 2024.
2. Management
(1) Management
Roy Sebag: A successful value investor who specializes in distressed assets. Later, he got interested in precious metals and mining. In 2015, he founded both the BitGold and the Mene Inc.
(2) Ownership and Compensation
Roy Sebag: owns around 3.8m shares. 30%.
Before fiscal 2021, he only took a $1 cash salary plus stock options. In fiscal 2024, his cash salary was raised to $250k+ $500k bonus.
3. Financial data
Notes: debt
Debt: $40m mortgage debt carrying interest at around 5.6%.
Notes: Share History
In 2023, it did a 5 for 1 reverse split.
Notes: Share Data
After the 5 for 1 reverse split, it has around 13m shares outstanding.
4. Valuation and comments
(1) Although its clients had pulled out their assets from the company, the asset value under its management had held steady through the years thanking the appreciation of the precious metal price. It is expected to generate a similar amount of storage fee revenue in the next few years. It should range from $10m to $15m per year.
(1) Although its clients had pulled out their assets from the company, the asset value under its management had held steady through the years thanking the appreciation of the precious metal price. It is expected to generate a similar amount of storage fee revenue in the next few years. It should range from $10m to $15m per year.
(2) The trading volume is very volatile from year to year. It is really hard to find the real trading volume. Overall, it seems rising precious metal prices will generate higher trading volume.
(3) Based on the current RE holdings in the UK, the company is expected to generate around $11m/year in rental revenue. Offset by the $2m interest expenses, the net rental income is around $9m/year.
(4) The current annual expense for the metal segments is around $2.5m. Corporate expense is around $5m/year. Removing all the expenses from the revenue mentioned above, it is expected to generate around $14m to $24m pretax income per year. The current CapX and tax are very minimal. The current market cap of $100m is very cheap.
(5) The tangible book value excluding Mene stocks is around $105 which is over the current market cap. The Mene stocks it holds are currently worth around another $10m.
(6) The company's financial reports are often inconsistent from year to year. This makes it hard to understand its business. It is impossible to figure out its real trading volume which is very important for the business.
5. Risk
(1) The company didn't manage the precious metal business well. The fee raising made its customers very unhappy. The trading volume of precious metals is very volatile. Its revenue from this segment will continue to fluctuate. Overall the precious metal segment is going downward. Eventually, the company might have to wind down the business. The revenue stream from this segment will die out.
(2) Regulation or litigation issues could incur in the precious metal segment. I suspect the discontinuation of the prepaid card and the crypto trading might well be caused by regulatory reasons.
(3) The real estate investing strategy might not be working. There could be unexpected issues like the rental could be interrupted if the tenants terminate contracts early.
(4) It is hard to analyze the financial reports of the company. Information might not be fully understood.
6. Conclusion
Although the precious metal business is not doing well, the company is still expected to generate very stable income for the next several years. Adding income from the rental business, it is worth much more than the current market cap of $100m.
7. Links
