One Small Cap Financial Services Stock to Punt On - XAU

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

Key highlights

• Growth in Asset Under Custody: The company's asset under management has grown gradually in recent years, owing to its continued focus on offering a smooth experience, as well as additional services such as custody arrangement, dealing, managing, and unrivalled research. It has clients in 120 countries and manages about CAD 2.1 billion in precious metal assets.

                 Source: Company Filing, Analysis by Kalkine Group

 Minimizing Operating Expenses: The company’s operating expenses in the reported period of Q3 2022 fell to CAD 3.08 million compared to CAD 3.6 million in pcp. An operating expense have been on an overall downward trend from Q3 2020, which is a key positive. The downward trend is attributable to decreases to most expense categories as the Company continues its mandate to control costs. The decrease is also attributed to lower professional fees associated with non-recurring regulatory costs. 

• Strong liquidity and financial position: The Company had CAD 27.1 million in cash and cash equivalents as of December 31, 2021, up 6% or CAD 1.6 million from March 31, 2021, and net working capital was CAD 88.5 million, also increased compared to the respected period. The maturity of loan receivables and the retention of operating revenue result in an increase in cash and cash equivalents, which is somewhat offset by precious metal purchases and share buybacks.

Risks associated with investment: The Company is exposed to price risk concerning the price of gold, silver, platinum, and palladium held as assets. Commodity price risk is defined as the potential adverse impact on the earnings of the Company. Other risks involved are like Foreign Currency Risk, Interest Rate Risk, and Liquidity Risk, etc. 

Financial overview of Q3 FY22 (Expressed in CAD)

Source: Company Filing

• In Q3 2022, the company posted revenue of CAD 67.1 million, decreased by 31% to CAD 97.6 million in the previous corresponding period. The lower revenue was primarily due to decrease in precious metal demand as investors shifted back to more traditional risk-on asset classes.

• Gross profit in the reported period increased by 17% to CAD 5.7 million against CAD 4.9 million in the previous corresponding period. An increase is mainly due to change in revaluation gain on precious metals, partially offset by decreases in precious metal trading revenue and fee revenue.

• On the back of lower operating expenses, the company improved its operating income in the reported period which stood at CAD 2.6 million compared to a profit of CAD 1.2 million in pcp.

• Net income fell to CAD 2.6 million compared to net profit of CAD 4.0 million in pcp. The decline was mainly due to higher income tax.
  

Stock recommendation

Despite the fact that precious metals markets are currently volatile, we expect the company to do well in H2 2022 as investors deal with the economic implications of the pandemic and the low-interest-rate environment. Furthermore, the company is reducing its overall running costs and anticipates that all of its clients will be able to resume normal trading activities on the platforms in the near future, which is a huge plus.

On the valuation front, the stock is available at an EV to Sales multiple of 0.4x on TTM basis, which is significantly lower than the industry (technology) median of 3.9x. Hence, considering the above rationales and discounted valuations we recommend a ‘Speculative Buy’ rating on the stock at the last closing price of CAD 1.90 on March 25, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 25, 2022). Source: Kalkine, Analysis by Kalkine Group

 *The reference data in this report has been partly sourced from REFINITIV.

Technical Analysis Summary

Investors can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.