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Goldmoney is More Than GoldAdding prime UK real estate produces solid real value & predictable earnings
After hearing David Einhorn explain on a Bloomberg radio podcast how he adjusted to investing in the current structurally broken equity markets, I realized that he and the CEO of GoldMoney, Roy Sebag had something in common. David used to do very for his investors by investing in companies with PE ratios of around 10 times, knowing that there would be a buyer at a higher price in the future. But with the growth of ETF investing, passive investments led to a lack of analysts following smaller cap companies. With little interest in smaller companies, David had to adjust his investment philosophy toward companies trading at 4 or 5 times earnings which could pay his investor off directly since there were a shortage of buyers of profitable value stocks. I’m not sure if GoldMoney’s Roy Sebag knows David Einhorn or if its just a matter of two great minds thinking alike. But what struck me when I recently spoke with James Turk, the Lead Director of Goldmoney, is that the recent adjustment to the Goldmoney business model fits into the kind of investment approach Einhorn is employing as explained in his recent interview with Barry Ritholtz. You can listen to it here: David Einhorn on structurally broken equity markets J Taylor's Gold Energy & Tech Stocks is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. The business model change that Goldmoney made makes it an obvious value proposition which is why I have begun coverage of it in my newsletter, J Taylor’s Gold, Energy & Tech Stocks. I have known this company and James Turk for many years prior to it going public. Its move into prime UK real estate provides it with predictable earnings and steady cash flows that reduces profit volatility and I think should boost the markets appreciation of this company over time. That still leaves it with plenty of potential upside from its traditional gold business during the emerging gold bull market. Because I think Goldmoney represents good value I have chosen to share my recent report on Goldmoney that was previously available only to paid subscribers. Enjoy! Goldmoney was covered in this letter in the past, but over the past year it has transitioned from a purely precious metals orientated business to ownership of three high-quality investment properties in the U.K. I have known James Turk the company’s founder and Chairman for many years so when I saw the company making this transition, I contacted James to ask him about this major change in Goldmoney’s business. Here is how he responded. “There is a trade off when we reduced (i.e., we didn’t sell all of it !!) our bullion position. We reduced the upside from bullion, but in return, we diversified our balance sheet and increased our cash flow (also, the leases adjust to inflation). Plus, we expect the building over time will appreciate in nominal value because of inflation, just like gold appreciates. The buildings probably won’t appreciate from inflation as fast as gold, but this under performance of the building is made up by the cash flow the buildings generate, which can be used to purchase gold/silver as long as they are undervalued. “The other important part is the triple net lease. The lessee is responsible for all expenses (maintenance, taxes, repairs, etc). We just collect a check every quarter. Our only expense is the management company we use to monitor the building and collect the rent for us. So, in a sense triple net leases are like a bond, and they trade on the basis of yield, which explains why the last building we bought was about half the price paid in 2017 by the previous owner, thanks to much higher interest rates since 2017. But unlike a bond, we own the building and land (or the long-term leasehold of the land). So, the only counter party risk is the company paying the lease, and our analysis has concluded that the tenants of the 3 buildings we purchased are acceptable risks. “It’s a long-term strategy that we think in the years ahead will benefit shareholders.”James then pointed out the that insiders including himself collectively own about 42% of the 13.45 million shares outstanding meaning that there are only about 7.8 million shares owned by the general public. So, let’s take a look a how the company is performing under the new strategy: I believe the best way to begin to evaluate this move is to compare the Q3 December 2022 with that of Q3 December 2023. I say that because the third quarter of 2023 included property holdings while the like period of 2022 did not. From an income perspective the new business model wins hands down. Total operating income as a percentage of total revenue in Q3 of 2023 amounted to 38.9% compared to Q3 2022 operating income of 26.26% of total revenues. So total operating income was $2.58 million higher in Q3 2023 than in Q3 2022. A major factor in net income are movements in the price of gold which are beyond the control of management. If you factor out gains from revaluation of precious metals of $8,237,029 during Q3 of 2022 and $1,126,898 during Q3 of 2023, net income for Q3 of 2023 was $4,878,049 compared to $2,103,811 during Q3 of 2022. Excluding revaluation of precious metals from net income, that calculates to ~ $0.35 during Q3 2023 vs. $0.14 during Q3 of 2022. As of December 31, 2023 Gold money displayed $1,782,297 worth of precious metals on its balance sheet. That compares compared to $53,228,431 at Q3, 2022. So, the impact of movements in the gold price should be far less volatile than in the past while the predictability of earnings from real estate should be very high. In other words, from an earnings standpoint, it is much more predictable than in the past and except for years when gold moves dramatically higher, earnings with the current real estate focus should be higher. That’s not to say that when gold finally has its day, Goldmoney won’t benefit beyond the appreciation of its reduced gold holdings because income from its core precious metals business is likely to rise as well. But it does allow analysts to begin to predict growth in shareholder tangible net worth much more accurately than when profits were so much depending on the price of precious metals. In fact, management which owns a large chunk of Goldmoney considers tangible net worth to be the most important metric. In its news release of February 6, management proudly noted that tangible net worth per share increased to $10.94 from $9.63, an increase of $1.31 per share or 14% year over year. And it also reported that gold-adjusted tangible equity per share of 0.125 grams. With the current price of gold of around $2,035, that calculates out to US$8.18 per share compared to the recent price of US$5.81. So, as you can see, the argument for owning Goldmoney is simply a value case. Note the company’s share price has been hovering near its all-time lows in 2022 and 2023 during a time when all the rage on Wall Street is to own a few technology stocks which by all metrics are overvalued. At some point in time, investors will have to come to grips with the reality that price inflation is not dead and most likely ready to rear its ugly head despite sweet talk from politician and central bankers. All the western economies are nearing the time when they will have to pay for living beyond their means during decades past. Simply because there isn’t enough cash flow to service debt, you can bank on central banks debasing fiat currencies. While gold is the most solid foundational value asset to own, real property also cannot be created out of thin air but unlike gold, it has real world use that is bringing significant cash flow to Goldmoney. Goldmoney’s debt load With the acquisition of real property some of which was funded with debt, the schedule of annual mortgage payments through 2029 is displayed in the chart above on your left leaving a $29170,102 balance at that point in time. Annual mortgage payments are certainly manageable based on annual cash flows. The two mortgages Goldmoney has on its books amounts to 35% of current property valuations. MANAGEMENT Roy Sebag is the Founder and Chief Executive Officer of Goldmoney Inc. (TSX: XAU), a global financial service and technology business providing clients with access to trading, delivery and storage of precious metals. He is also the Founder and Chief Executive Officer of Menē Inc. (TSXV: MENE) a direct-to-consumer jewelry brand which crafts pure 24 karat gold and platinum jewelry that is transparently sold by gram weight. Previously, he founded BitGold which launched in 2014 and rapidly became the most successful digital gold payments and savings platform in history. BitGold ultimately merged with Goldmoney in 2015 resulting in the creation of Goldmoney Inc. Prior to BitGold, Mr. Sebag was a portfolio manager that engaged in fundamental long and short equity investing in distressed, event-driven, and natural resource related opportunities. Mr. Sebag has enjoyed a long career in business in diverse industries ranging from technology, precious metals, manufacturing, mining, agriculture, and investment management. He is also the author of the bestselling book The Natural Order of Money and several noted papers including: Global Gold Mine & Deposit Ranking and The Gold Jewelry Standard. Alessandro "Alex" Premoli is the Chief Technology Officer of Goldmoney. He is the architect of the Goldmoney proprietary platform, and leads the Goldmoney development team in Milan, Italy. Over the last decade, he has developed encrypted storage and messaging systems for highly sensitive, data-intensive organizations, gaining comprehensive experience in security, cryptography and digital signature solutions. He is passionate about open-source projects and is an active committer to the FreeBSD Project under the moniker "Alex Dupre". He holds a Masters Degree in Informatics from the University of Milano-Bicocca. Mark Olson is CFO. He began his career at PricewaterhouseCoopers, a premier global services provider. Mark subsequently managed the corporate reporting for Zi Corporation and Brookfield Renewable Energy Partners LP., publicly traded companies engaged in the software and renewable energy sectors. Mark also worked on a number of consulting engagements in the hedge fund, and technology sectors, working at RBC as a Senior Manager before joining Goldmoney Inc. in 2020. Mark currently holds the Canadian Chartered Professional Accountant and Chartered Financial Analyst designations. Paul Mennega is COO. He began his career at PricewaterhouseCoopers, a premier global services provider. Mark subsequently managed the corporate reporting for Zi Corporation and Brookfield Renewable Energy Partners LP., publicly traded companies engaged in the software and renewable energy sectors. Mark also worked on a number of consulting engagements in the hedge fund, and technology sectors, working at RBC as a Senior Manager before joining Goldmoney Inc. in 2020. Mark currently holds the Canadian Chartered Professional Accountant and Chartered Financial Analyst designations. BOARD OF DIRECTORS James Turk is lead Director. He his career at Chase Manhattan Bank where he worked on assignments in Thailand, the Philippines, and Hong Kong. Since, he has been the manager of the Commodity Department of the Abu Dhabi Investment Authority and held various advisory roles in money management. In 2001, he co-founded Goldmoney with his son Geoff Turk and remains an active board member and advisor today. Roy Sebag, CEO. See above Stefan Wielerpreviously worked for over 10 years at some the world's top financial institutions, including a role as an Executive Director and senior commodity strategist at Goldman Sachs, Head of Research for NY-based commodities hedge fund BBL Commodities, which made a 51.3% return in 2014 and was winner of the "New Fund of the Year" at the Absolute Return Awards, and as the head of commodity research (buy side) at Julius Baer in Zurich.Stefan studied Mandarin Chinese at the National Taiwan Normal University in Taipei and earned a Master’s degree in Financial Economics at the University of Zurich, where he graduated with honors. Stefan is a CFA (Chartered Financial Analyst) charterholder and a CAIA (Chartered Alternative Investment Analyst) charterholder. Mahendra Naik is a Chartered Accountant with mining and investment industry experience. He holds a Bachelor of Commerce degree from the University of Toronto. He practiced as a Chartered Accountant for nine years with a major Canadian accounting firm. As a Chartered Accountant, Mr. Naik has experience in preparing, auditing, analyzing and evaluating financial statements, understands internal controls and procedures for financial reporting and understands the accounting principles used by the Company to prepare its financial statements as well as the implications of said accounting principles on the Company’s results. From 1990 to 1999, he was the Chief Financial Officer of IAMGOLD. He is also the Audit Committee Chairman for a TSX listed base-metals company and a Director of number of private companies. Andres Finkielsztain is the Founding Managing Partner of FinkWald LLC, a private investment office specializing in private equity, real estate, media, and technology. Andres is also the co-head of the Special Situations division at Banco Industrial in Argentina, where he analyzes and provides financing solutions to Argentinean-based companies and institutions. Andres previously served as a financial advisor for Soros Brothers Investments (SBI), a private investment office founded in 2011 by Alexander and Gregory Soros, and as an analyst for Emerging Markets at Soros Fund Management LLC. Andres also worked at J.P. Morgan for over 10 years in various capacities within Asset Management, including the role of Global Investment Opportunity and Emerging Markets Specialist. Andres graduated with a BA in Economics from Bard College where he served as the President of a Latin American organization. The Bottom Line Pure and simple, this is a value play at a time when value plays are almost totally out of fashion. The company figures to do well in the emerging gold bull market from its traditional gold business. At the expense of some upside from gold appreciation the company as sold much of the gold horde it held on its balance sheet to acquire some prime properties in the U.K. which reduces risk in terms of volatility of valuations. It also provides a better ability to project earnings which compared to the company’s current market cap are very robust. As noted above, when earnings from metals appreciation was factored out the company generated operating earnings of 4,878,049 in 2023 after adding property to its balance sheet compared to $2,103,811 in Q3 2022 before the property acquisitions. The earnings of $4,878,049 amounts to ~$0.35 per share. Property earnings are very predictable so it may be safe to project annualized earnings without metals appreciation of $1.40/share. The current share price of is C$7.91. Goldmoney is not only selling near its all time low, but it also is selling at a PE ratio of 5.65 times! Yes, Goldmoney is a value play at a time when value plays are out of fashion. But if you have seen the handwriting on the wall, you know that all fiat currencies are nearing a time when they not only lose their value, but this is a time when value loss looks set to take place on an exponential place. Governments can’t print gold or real estate. And the company’s real estate values are considerably above the debt it has taken on and the rent paying clients are very strong. I don’t expect this is a story that will excite many investors right now. But from what I can see, management is excited. Based on insider reports they are buying a lot of stock at these current low prices. It might be a good idea to join them. Gold Money Properties J Taylor's Gold Energy & Tech Stocks is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber. You're currently a free subscriber to J Taylor's Gold Energy & Tech Stocks. 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