Gold Money Inc. (TSX: XAU) is engaged in precious metal sales to its clients through its online platform. The services include arranging delivery and storage of precious metals for its clients, coin retailing, and lending.

Key Highlights:

• Improved profitability margins on sequential basis: The company reported its gross margin of 8.3% in Q3FY22, as compared to 2.2% in Q2FY22. Moreover, the group reported its EBITDA margin and operating margins of 4.2% and 3.8%, respectively, as compared to the negative EBITADA margin and negative operating margins of 6.4% and 7%, respectively, in Q2FY22. This is driven by improved cost metrics, which is a key positive.

• Growth in cash and cash equivalents: At the end of Q3FY22, the group reported its cash and cash equivalents of CAD 26.3 million, which is 9% higher than Q4FY21. A higher cash balance indicates better liquidity position and is a key positive for the company.

• Sequential Growth in Client Holdings: At the end of Q3FY22, the company reported higher client holdings of CAD 2.15 billion, as compared to CAD 2.11 billion in Q2FY22. A higher client holding indicates a higher asset under management, which is encouraging for the operational point.

Risk Associated with the Investment:

The company’s operations might hinder due to price risk concerning precious metal prices such as gold, silver, platinum and palladium held as assets. Volatility in the international prices might lead to lower earnings for the group. 

Q3FY22 Financial Highlights:

Q3FY22 Income Statement Highlights (Source: Company Report)

• XAU announced its quarterly result, wherein the company posted its revenue of CAD 67.0 million, declined from CAD 97.5 million in pcp. The decrease was primarily due to lower demand for precious metals during the period.
• The group reported a higher gross profit of CAD 5.7 million from CAD 4.9 million in pcp, despite a lower top-line. This is due to a lower cost of sales coupled with a gain from revaluation of precious metals.
• Total operating expenses declined to CAD 3.0 million from CAD 3.6 million in Q3FY21, due to a drastically lower service provider fees and a decline in stock based compensation and lower payroll expense. This was partially offset by a higher general & administrative expense and higher advertising & promotion costs. Operating income surged to CAD 2.6 million from CAD 1.2 million in pcp.
• Despite a higher operating income, the company reported a lower net income of CAD 2.6 million in Q3FY22, as compared to CAD 4.0 million in pcp, due to higher income tax expense coupled with an unrealized loss of CAD 0.1 million versus a gain of CAD 1.8 million in pcp.

Stock Recommendation:

The company has a prudent capital management and reported its D/E ratio of only 0.01x in Q3FY22, significantly lower than the industry median of 1.03x. This indicates improved financial flexibility and is a key positive for the company. Additionally, the XAU stock is available at an EV to Sales multiples of 0.4x on TTM basis, as compared to the industry (Technology) median of 3.7x. Hence, considering the aforesaid facts, valuation, we give a ‘Speculative Buy’ rating in the stock of XAU at the last closing price of CAD 1.86 on April 12, 2022.

One-Year Technical Price Chart (as on April 12, 2022). Analysis by Kalkine Group

  Technical Analysis Summary

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