A-MARK PRECIOUS METALS INC AMRK
March 18, 2014 - 9:46am EST by
aaron16
2014 2015
Price: 13.40 EPS $1.86 $0.00
Shares Out. (in M): 7 P/E 7.2x 0.0x
Market Cap (in $M): 93 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

Sign up for free guest access to view investment idea with a 45 days delay.

  • Spin-Off
 

Description

A-Mark is a specialty metals trading company that was spun out of OTC listed Spectrum Group ("SPGZ") and up-listed on the NASDAQ under "AMRK". Shares of AMRK were distributed on 3/17. 

AMRK trades at a trailing PE of 7.2 and an ex-cash P/E of 6.4. AMRK has averaged a ROE of over 25% the last 5 years. The company’s market cap is $93 million, while over the last five years it has paid out over $46 million in dividends and by my estimation has a pro-forma dividend yield of 11 to 13%.

AMRK has a very sophisticated board. Its members have effected multiple transactions to increase their ownership in AMRK (from under 10% in 2012 to over 40%), while also enhancing value for all shareholders.

Business Background

AMRK (http://www.amark.com/) is a full-service precious metals trading company, and an official distributor for many government mints.

In their coin & bar segment they offer gold, silver, platinum and palladium in the form of bars, plates, powder, wafers, grains, and coins. In their industrial segment they service manufacturers that utilize precious metals.

AMRK takes no price-risk. All of their inventory is hedged, and they generate income by making a market in physical metals. In 2012, revenue was $7 billion with gross profits of $20 million. Once a customer places an order they drop-ship the physical metal or allow their customers to pick it up at a secure storage facility. 

Inventory is financed through a demand credit facility. The total size of the facility is $170 million with $100 million outstanding. The facility is provided by 5 banks and has consistently been up-sized as metal prices rose from 2009-2011. The facility requires that they maintain a minimum tangible net-worth of $25 million with current TBV of approximately $50 million.

AMRK has a unique competitive advantage in their coin & bar segment. They have the largest network of precious metal dealers and are able to service them through their relationships with mints across the globe. These relationships may explain why executive compensation is very high (touched on below).

Over the last few years, AMRK has increased their value proposition. They have expanded their core trading and distribution services and are now operating on 5 continents. They have also moved into ancillary business lines such as financing and storage. In 2012, they opened a trading desk in Vienna, allowing customers to purchase metals 17 hours a day. In mid 2014 they will introduce an electronic platform.

The company has two main subsidiaries, CFC and TDS. Transcontinental depository service “TDS” offers customers the ability to store their metal. Impact of this business line is not broken out and it accounts for less than 1% of revenue.

Collateral Finance Corporation “CFC” enables customers to get a loan secured by their metal. This business is significant and has annually contributed between $4 and $8 million in interest margin to AMRK. As of December 31st they have a loan portfolio of $32 million. The majority of loans are below 75% of asset value, and there have been no material impairments since they have been running this business. The size of the loan is a function of the price of gold. As gold prices rise a loan to finance a fixed amount of ounces increases which drives up interest income. This business is a nice compliment to the core distribution business, because when prices are a bit soft demand for physical from collectors is very strong (http://www.bloomberg.com/news/2014-01-25/gold-mint-runs-overtime-in-race-to-meet-world-coin-demand.html), and when prices are high they earn more on their loan portfolio. This has removed a lot of the cyclicality from the business.

Overall, the main drivers of their business are volatility, demand for ounces, and the market price of metals. This means the business performs best in times of fear and macro instability, which allows AMRK to be almost a natural hedge in a portfolio.

SG&A is generally flat with some variation based on incentive compensation, which provides for a lot of operating leverage.

 

Gross Profits (in million) (fiscal year end 6/30):

09: $43.2, 10: $20.3, 11: $29.8, 12: $26.4, 13: $30.3

SG&A:

09: No information 10: No information $, 11: $13.4, 12: $15.6, 13: $14.1

Operating Income:

09: $26.2, 10: $7.1, 11: $21.7, 12: $18.9, 13: $20.6

Net Income:

09: $16.7, 10: $6.5, 11: $12.7, 12: $10.6, 13: $12.5

Dividends:

09: $0, 10: $17.5, 11: $3.7, 12: $0, 13: $15, 14: $10

Total: $46.2 million

These dividends were declared to the parent company to finance losses in SPGZ and to fund the multiple corporate transactions that I will describe below.

AMRK has a strong balance sheet. It has shareholder’s equity of approximately $50 million. In a very downside case scenario where overtime the business makes no money, it should be worth at least tangible book as they could always just liquidate the inventory and return the cash.

AMRK requires no additional equity capital maintain or grow their business. If they are able to grow internationally they will be able to finance the necessary inventory through the excess capacity in their credit facility.

AMRK is in a unique niche that has consistently produced excellent returns and has the opportunity to return future capital to shareholders. 

History, Board & Transactions

Prior to 2008, SPGZ was known as Escala Group. Escala was majority owned by a Spanish company named Afinsa. Afinsa held a 57% stake in SPGZ. In 2006, Afinsa was exposed for perpetrating a Ponzi scheme where-by they guaranteed Spanish savers a 7% return on their money for investing in Afinsa’s stamp collections. Escala Group, through its CEO and founder Greg Manning, was accused of aiding the scheme by controlling the main directory of stamp prices, and inflating stamp prices. This enabled Afinsa to show on-paper gains to their stamp investors and attract more deposits etc. Full read (https://www.sec.gov/litigation/complaints/2009/comp20965.pdf)

In 2005, Escala in-conjunction with Auctentia, a subsidiary of Afinsa, respectively purchased 80% and 20% of AMRK.

In May 2006, Spanish authorities raided the offices of Afinsa and charged them with the above described Ponzi scheme. Escala was implicated in inflating their revenue through various transactions with Afinsa. They ultimately de-listed and were forced to restate multiple years of filings.

In 2008, Greg Manning a director since 2000 and the President of the Numismatics division became CEO and the company changed its name to Spectrum Group.

In 2009, Jeffrey Benjamin, a Senior Advisor to Apollo and Cyrus Capital, and Jess Ravich, Founder of Libra Securities, and the head of alternative products at TCW joined the board.

Transactions

In September 2012, SPGZ and Afinsa, now in Spanish liquidation proceedings, came to an agreement to repurchase 47% of their stake in SPGZ and Auctentia’s entire interest in AMRK.

SPGZ offered each shareholder (excluding Afinsa) 1.4 transferable subscription rights for each share of common stock for the opportunity to purchase up to 19 million shares of SPGZ.

Prior to the transaction insider ownership was as follows:

Greg Roberts 1.0m shares (3.1%)

Jeffrey Benjamin – 1.2m shares (3.55%)

Jess Ravich – 324k shares (.96%)

At closing, the company re-purchased 15.6 million shares and Auctentia’s 20% stake in AMRK for $51.17 million.

12 million shares were acquired at $1.90 per share for $22.8 million via the exercise of the rights offering, 1.4m shares were sold in a private placement at $1.90 and the balance of shares as well as the AMRK stake were acquired from the company’s cash (which was funded via a distribution from AMRK to SPGZ). These shares were retired.

After the transaction insider ownership was as follows:

 Greg Roberts 3.7m shares (12.1%)

Jeffrey Benjamin – 3.0m shares (9.6%)

Jess Ravich – 1.0m shares (3.3%)

Joel / Charles / Harold Anderson – 2.9m shares (9.4%) (They appear to be friends with Greg Roberts)

William Montgomery – 994k shares (3.2%) (Former MD at Salomon and connected to Ravich through Libra Securities)

Ellis Landau – 700k  shares (2.3%) (Former CFO of Boyd Gaming)

Insiders used the rights offering to take their ownership from less than 10% to greater than 40%.

Transaction 2:

On February 26, 2014 the company acquired the remainder of Afinsa’s stake in SPGZ.

They repurchased their 10% stake at $2.10, a substantial discount to the market price. This purchase will come in two tranches with the first tranche already closed, and the remainder will close on or before July 1st.

For AMRK, there are now 7.4 million shares outstanding, but after the second repurchase in July, which is being funded by SPGZ, there will be 7 million shares outstanding.

Valuation

This business requires no additional capital, and I imagine these boards members want to start putting some money back in their pockets.

My assumption is that they are going to pay out all net income and AMRK will trade on a yield basis.

The company has earned an average of $12 million in net income over the last 5 years, and although there will be a reasonable amount of cash (last filing $16 million) on the balance sheet to support quarterly fluctuations lets be conservative and say they consistently pay out $10 million, and leave the extra as an opportunity for special dividends along the way.

At a 6% yield the market cap would be $166 million. Accounting for the future share repurchase (which will be funded by SPGZ) there will be 7 million shares outstanding by July.

This gives us a price per share of $23.81 vs a current market price of $13.30

On a P/E basis, I think 12.5x (no growth) 5 year average earnings is conservative

$150 million or $21.41 per share

At 15x:$180 or $25.71 per share

For context there are 52 companies on the NASDAQ that have averaged an ROE between 15 and 40% for over 5 years that pay a dividend. Knocking off the highest and lowest 5 dividend yields (mostly mortgage REITS at the high-end) you would get an average dividend of 2.93%, an average P/E of 19.5, and an average P/B of 4x. Average payout ratio of these companies was 57%.

At these numbers AMRK would have to following valuation

2.93% dividend yield: $341 million 48.76 per share

P/E of 19.5 $253 million or $36.21 per share

P/B of 4 $200m or $28.57 per share

All in all own a pretty good business at a silly price with multiple catalysts - spin, up listed, dividend pay out, opportunity for IR.

Note on compensation

Compensation is aggressive at AMRK but it does align the executives with shareholders.

CEO Greg Roberts gets:

12% of pre-tax profits up to $8 million PLUS

15% of pre-tax profits between $8 to $10 million PLUS

18% of pre-tax profits in-excess of $10 million

So in a year when the firm makes $20 million in operating income, Greg has made $3.06 million.

Greg has been in the metals and collectibles business for a long-time. My belief is that a lot of their dealer network comes from personal relationships, which is why he can command such an aggressive pay package.

Thor Gjerdum the COO seems to have responsibility of CFC as he gets 15% of CFC’s pre-tax profits as well as .5% of pre-tax profits up to $10 million + 2.75% of pre-tax profits in excess of $10 millilon.

David Madge, the President, 1% from $18-$25 million escalating up to 6% of profits in excess of $35 million.

The fact that they are not compensated on EPS seems to underscore that they will dividend out excess capital.

Note on SPGZ

After the transaction SPGZ will be reversing splitting their stock 1-1000. The will cash out shareholders with fewer than 1000 shares at .65 cents, which values the business at approximately $20m. This is at a 50% discount to book with the company expecting to receive a tax refund after the separation. Although this business was losing a fair a bit of money annually, a lot of losses will be curtailed by going dark. The auction business generates a good amount of gross profits and it will be interesting to see if they will now be profitable. They will still file regular, albeit unaudited financials.

Insiders still have a fair amount of money tied up in SPGZ and I doubt they are just writing it off. And as an interesting side note, as part of the February 28th repurchase, SPGZ also repurchased the Washington collection for $350k.

From same SEC report as above

Washington Collection

The Washington Collection was a collection of items purported to have belonged to George Washington that Escala had purchased in 1996 for $1.2 million. The collection was appraised in 1997 at $2 million. Escala could not sell the collection for many years. By June 2003, after holding the collection for seven years, Escala wrote down the value of the collection to $96,000 pursuant to Company policy because the collection had not been sold.

I have no idea what the Washington collection is worth, but it seems like an interesting collectible. I don’t they would go through the pain of re-purchasing it if they didn’t have a strong belief than it was worth significantly more than $350k.

Risk

Very reliant on credit facility

The risk of Afinsa owning 10% of A-Mark post spin is now no longer an issue

The Afinsa administrator is suing SPGZ for abetting the Ponzi scheme, but there is no mention of this as a risk in the AMRK prospectus. AMRK describes why this is not a risk in a response to the SEC comments on the AMRK Form 10

Fair amount of concentration from year to year in individual customers, but the customers vary


I do not hold a position of employment, directorship, or consultancy with the issuer.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

spin, up listed, dividend announcement, opportunity for IR.

    sort by    

    Description

    A-Mark is a specialty metals trading company that was spun out of OTC listed Spectrum Group ("SPGZ") and up-listed on the NASDAQ under "AMRK". Shares of AMRK were distributed on 3/17. 

    AMRK trades at a trailing PE of 7.2 and an ex-cash P/E of 6.4. AMRK has averaged a ROE of over 25% the last 5 years. The company’s market cap is $93 million, while over the last five years it has paid out over $46 million in dividends and by my estimation has a pro-forma dividend yield of 11 to 13%.

    AMRK has a very sophisticated board. Its members have effected multiple transactions to increase their ownership in AMRK (from under 10% in 2012 to over 40%), while also enhancing value for all shareholders.

    Business Background

    AMRK (http://www.amark.com/) is a full-service precious metals trading company, and an official distributor for many government mints.

    In their coin & bar segment they offer gold, silver, platinum and palladium in the form of bars, plates, powder, wafers, grains, and coins. In their industrial segment they service manufacturers that utilize precious metals.

    AMRK takes no price-risk. All of their inventory is hedged, and they generate income by making a market in physical metals. In 2012, revenue was $7 billion with gross profits of $20 million. Once a customer places an order they drop-ship the physical metal or allow their customers to pick it up at a secure storage facility. 

    Inventory is financed through a demand credit facility. The total size of the facility is $170 million with $100 million outstanding. The facility is provided by 5 banks and has consistently been up-sized as metal prices rose from 2009-2011. The facility requires that they maintain a minimum tangible net-worth of $25 million with current TBV of approximately $50 million.

    AMRK has a unique competitive advantage in their coin & bar segment. They have the largest network of precious metal dealers and are able to service them through their relationships with mints across the globe. These relationships may explain why executive compensation is very high (touched on below).

    Over the last few years, AMRK has increased their value proposition. They have expanded their core trading and distribution services and are now operating on 5 continents. They have also moved into ancillary business lines such as financing and storage. In 2012, they opened a trading desk in Vienna, allowing customers to purchase metals 17 hours a day. In mid 2014 they will introduce an electronic platform.

    The company has two main subsidiaries, CFC and TDS. Transcontinental depository service “TDS” offers customers the ability to store their metal. Impact of this business line is not broken out and it accounts for less than 1% of revenue.

    Collateral Finance Corporation “CFC” enables customers to get a loan secured by their metal. This business is significant and has annually contributed between $4 and $8 million in interest margin to AMRK. As of December 31st they have a loan portfolio of $32 million. The majority of loans are below 75% of asset value, and there have been no material impairments since they have been running this business. The size of the loan is a function of the price of gold. As gold prices rise a loan to finance a fixed amount of ounces increases which drives up interest income. This business is a nice compliment to the core distribution business, because when prices are a bit soft demand for physical from collectors is very strong (http://www.bloomberg.com/news/2014-01-25/gold-mint-runs-overtime-in-race-to-meet-world-coin-demand.html), and when prices are high they earn more on their loan portfolio. This has removed a lot of the cyclicality from the business.

    Overall, the main drivers of their business are volatility, demand for ounces, and the market price of metals. This means the business performs best in times of fear and macro instability, which allows AMRK to be almost a natural hedge in a portfolio.

    SG&A is generally flat with some variation based on incentive compensation, which provides for a lot of operating leverage.

     

    Gross Profits (in million) (fiscal year end 6/30):

    09: $43.2, 10: $20.3, 11: $29.8, 12: $26.4, 13: $30.3

    SG&A:

    09: No information 10: No information $, 11: $13.4, 12: $15.6, 13: $14.1

    Operating Income:

    09: $26.2, 10: $7.1, 11: $21.7, 12: $18.9, 13: $20.6

    Net Income:

    09: $16.7, 10: $6.5, 11: $12.7, 12: $10.6, 13: $12.5

    Dividends:

    09: $0, 10: $17.5, 11: $3.7, 12: $0, 13: $15, 14: $10

    Total: $46.2 million

    These dividends were declared to the parent company to finance losses in SPGZ and to fund the multiple corporate transactions that I will describe below.

    AMRK has a strong balance sheet. It has shareholder’s equity of approximately $50 million. In a very downside case scenario where overtime the business makes no money, it should be worth at least tangible book as they could always just liquidate the inventory and return the cash.

    AMRK requires no additional equity capital maintain or grow their business. If they are able to grow internationally they will be able to finance the necessary inventory through the excess capacity in their credit facility.

    AMRK is in a unique niche that has consistently produced excellent returns and has the opportunity to return future capital to shareholders. 

    History, Board & Transactions

    Prior to 2008, SPGZ was known as Escala Group. Escala was majority owned by a Spanish company named Afinsa. Afinsa held a 57% stake in SPGZ. In 2006, Afinsa was exposed for perpetrating a Ponzi scheme where-by they guaranteed Spanish savers a 7% return on their money for investing in Afinsa’s stamp collections. Escala Group, through its CEO and founder Greg Manning, was accused of aiding the scheme by controlling the main directory of stamp prices, and inflating stamp prices. This enabled Afinsa to show on-paper gains to their stamp investors and attract more deposits etc. Full read (https://www.sec.gov/litigation/complaints/2009/comp20965.pdf)

    In 2005, Escala in-conjunction with Auctentia, a subsidiary of Afinsa, respectively purchased 80% and 20% of AMRK.

    In May 2006, Spanish authorities raided the offices of Afinsa and charged them with the above described Ponzi scheme. Escala was implicated in inflating their revenue through various transactions with Afinsa. They ultimately de-listed and were forced to restate multiple years of filings.

    In 2008, Greg Manning a director since 2000 and the President of the Numismatics division became CEO and the company changed its name to Spectrum Group.

    In 2009, Jeffrey Benjamin, a Senior Advisor to Apollo and Cyrus Capital, and Jess Ravich, Founder of Libra Securities, and the head of alternative products at TCW joined the board.

    Transactions

    In September 2012, SPGZ and Afinsa, now in Spanish liquidation proceedings, came to an agreement to repurchase 47% of their stake in SPGZ and Auctentia’s entire interest in AMRK.

    SPGZ offered each shareholder (excluding Afinsa) 1.4 transferable subscription rights for each share of common stock for the opportunity to purchase up to 19 million shares of SPGZ.

    Prior to the transaction insider ownership was as follows:

    Greg Roberts 1.0m shares (3.1%)

    Jeffrey Benjamin – 1.2m shares (3.55%)

    Jess Ravich – 324k shares (.96%)

    At closing, the company re-purchased 15.6 million shares and Auctentia’s 20% stake in AMRK for $51.17 million.

    12 million shares were acquired at $1.90 per share for $22.8 million via the exercise of the rights offering, 1.4m shares were sold in a private placement at $1.90 and the balance of shares as well as the AMRK stake were acquired from the company’s cash (which was funded via a distribution from AMRK to SPGZ). These shares were retired.

    After the transaction insider ownership was as follows:

     Greg Roberts 3.7m shares (12.1%)

    Jeffrey Benjamin – 3.0m shares (9.6%)

    Jess Ravich – 1.0m shares (3.3%)

    Joel / Charles / Harold Anderson – 2.9m shares (9.4%) (They appear to be friends with Greg Roberts)

    William Montgomery – 994k shares (3.2%) (Former MD at Salomon and connected to Ravich through Libra Securities)

    Ellis Landau – 700k  shares (2.3%) (Former CFO of Boyd Gaming)

    Insiders used the rights offering to take their ownership from less than 10% to greater than 40%.

    Transaction 2:

    On February 26, 2014 the company acquired the remainder of Afinsa’s stake in SPGZ.

    They repurchased their 10% stake at $2.10, a substantial discount to the market price. This purchase will come in two tranches with the first tranche already closed, and the remainder will close on or before July 1st.

    For AMRK, there are now 7.4 million shares outstanding, but after the second repurchase in July, which is being funded by SPGZ, there will be 7 million shares outstanding.

    Valuation

    This business requires no additional capital, and I imagine these boards members want to start putting some money back in their pockets.

    My assumption is that they are going to pay out all net income and AMRK will trade on a yield basis.

    The company has earned an average of $12 million in net income over the last 5 years, and although there will be a reasonable amount of cash (last filing $16 million) on the balance sheet to support quarterly fluctuations lets be conservative and say they consistently pay out $10 million, and leave the extra as an opportunity for special dividends along the way.

    At a 6% yield the market cap would be $166 million. Accounting for the future share repurchase (which will be funded by SPGZ) there will be 7 million shares outstanding by July.

    This gives us a price per share of $23.81 vs a current market price of $13.30

    On a P/E basis, I think 12.5x (no growth) 5 year average earnings is conservative

    $150 million or $21.41 per share

    At 15x:$180 or $25.71 per share

    For context there are 52 companies on the NASDAQ that have averaged an ROE between 15 and 40% for over 5 years that pay a dividend. Knocking off the highest and lowest 5 dividend yields (mostly mortgage REITS at the high-end) you would get an average dividend of 2.93%, an average P/E of 19.5, and an average P/B of 4x. Average payout ratio of these companies was 57%.

    At these numbers AMRK would have to following valuation

    2.93% dividend yield: $341 million 48.76 per share

    P/E of 19.5 $253 million or $36.21 per share

    P/B of 4 $200m or $28.57 per share

    All in all own a pretty good business at a silly price with multiple catalysts - spin, up listed, dividend pay out, opportunity for IR.

    Note on compensation

    Compensation is aggressive at AMRK but it does align the executives with shareholders.

    CEO Greg Roberts gets:

    12% of pre-tax profits up to $8 million PLUS

    15% of pre-tax profits between $8 to $10 million PLUS

    18% of pre-tax profits in-excess of $10 million

    So in a year when the firm makes $20 million in operating income, Greg has made $3.06 million.

    Greg has been in the metals and collectibles business for a long-time. My belief is that a lot of their dealer network comes from personal relationships, which is why he can command such an aggressive pay package.

    Thor Gjerdum the COO seems to have responsibility of CFC as he gets 15% of CFC’s pre-tax profits as well as .5% of pre-tax profits up to $10 million + 2.75% of pre-tax profits in excess of $10 millilon.

    David Madge, the President, 1% from $18-$25 million escalating up to 6% of profits in excess of $35 million.

    The fact that they are not compensated on EPS seems to underscore that they will dividend out excess capital.

    Note on SPGZ

    After the transaction SPGZ will be reversing splitting their stock 1-1000. The will cash out shareholders with fewer than 1000 shares at .65 cents, which values the business at approximately $20m. This is at a 50% discount to book with the company expecting to receive a tax refund after the separation. Although this business was losing a fair a bit of money annually, a lot of losses will be curtailed by going dark. The auction business generates a good amount of gross profits and it will be interesting to see if they will now be profitable. They will still file regular, albeit unaudited financials.

    Insiders still have a fair amount of money tied up in SPGZ and I doubt they are just writing it off. And as an interesting side note, as part of the February 28th repurchase, SPGZ also repurchased the Washington collection for $350k.

    From same SEC report as above

    Washington Collection

    The Washington Collection was a collection of items purported to have belonged to George Washington that Escala had purchased in 1996 for $1.2 million. The collection was appraised in 1997 at $2 million. Escala could not sell the collection for many years. By June 2003, after holding the collection for seven years, Escala wrote down the value of the collection to $96,000 pursuant to Company policy because the collection had not been sold.

    I have no idea what the Washington collection is worth, but it seems like an interesting collectible. I don’t they would go through the pain of re-purchasing it if they didn’t have a strong belief than it was worth significantly more than $350k.

    Risk

    Very reliant on credit facility

    The risk of Afinsa owning 10% of A-Mark post spin is now no longer an issue

    The Afinsa administrator is suing SPGZ for abetting the Ponzi scheme, but there is no mention of this as a risk in the AMRK prospectus. AMRK describes why this is not a risk in a response to the SEC comments on the AMRK Form 10

    Fair amount of concentration from year to year in individual customers, but the customers vary


    I do not hold a position of employment, directorship, or consultancy with the issuer.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    spin, up listed, dividend announcement, opportunity for IR.

    Messages


    SubjectThanks
    Entry03/18/2014 10:08 AM
    MemberMSLM28
    Thanks for the idea, interesting that Jess Ravich is involved, I'm surprised he didn't make a run at this with the ALJJ shell. What are your thoughts on the auditor change from KPMG to BDO?

    SubjectEasy money gone?
    Entry03/18/2014 10:19 AM
    Memberstraw1023
    We bought SPGZ at $2.75 a month ago (on a very nice write-up by OTC Adventures) and thought that collectibles was worth 40 cents or so. It turns out, someone was willing to buy lots of SPGZ yesterday at 80 cents so lucky break. But at the time we figured we were soucing AMRK at ($2.75-0.40)*4 = $9.4. I am not nearly as enthusiastic at $13.40.
     
    On your valuation, isn't this highly (counter-)cyclical. What happens to profits if world returns to pre-2008 attitude and everyone puts their guns-n-gold away until the next crisis? I am not sure I would pay 12.5x this (2009-2013) 5-year average. I would probably pay about that times 2004-2013 10-year average (half in crisis/half out of crisis).  

    SubjectRE: Easy money gone?
    Entry03/18/2014 10:31 AM
    Memberaaron16
    Straw,
     
    The easiest money is gone. That doesn't mean it is not still materially undervalued. 
     
    I think it is less counter-cylical than you make it out to be. A lot of the counter-cylicality is mitigated by the CFC business. 
     
    If you think that this is going to pre-2008 attitude, then I would assume we should get pre-2008 gold prices. $500-800. The volatility in the gold market from that move will probably create a better earnings stream then the move from $1000-1700-1400 (2009-2013).
     
     
    Also, I think in this environment, you are likely to see it start to trade on a yield basis. While at the lower range of comparable NASDAQ yields, it is questionable if that is a reasonable valuation, but at 5-8% I think that is reasonable and I doubt it sits out in the market throwing off 10+%
     

    SubjectRE: dividend questions
    Entry03/18/2014 10:44 AM
    Memberaaron16
    Thanks Otto. 
     
    I think they can easily support a quarterly dividend of $2.5 million. They will have significant cash approx. $16mln on the B/S that could tide up quarter to quarter short-falls.
     
    On average the business has been earning abour $12 million after-tax, and I think that leaves plenty of room for a specials.
     
    Is this the way they will proceed, I don't know.
     
    They just did a $5 million dividend to SPGZ in February to enable them to re-purchase the shares. My guess is that they wait until they get a full quarter of earnings which would be 6/30 which is also the end of their fiscal year (this is just a speculation).
     
    3. The fiscal year end 6/30 this dividend was paid in 9/12 to faciliate the share re-purchase. They were probably waiting to see where subscriptions came in for the rights offering to figure out how much they would have to dividend up to complete the desired transaction. 

    SubjectTechnical Question about Second Closing
    Entry03/18/2014 11:35 AM
    Memberstraw1023
    When SGI buys the shares of AMRK for the July closing, where do you see that those shares are then going to be retired? I believe you are implying that when you say effective shr count is 7.0mm, not 7.4mm.
     
    I am not confident, but I do not think those shares get retired. I think that SGI simply owns them. Of course, SGI could sell them to AMRK in an arm's length transaction.
     
    If SGI has agreed to acquire them and then retire them, that valuable asset to AMRK would need to appear on a revised balance sheet, and I think that they would have needed to produce that in an SEC filing. And I cannot find it after a cursory glance. 

    SubjectRE: Technical Question about Second Closing
    Entry03/18/2014 11:56 AM
    Memberaaron16
    Straw,
     
    Interesting point. 
     
    When I first read it, I distincly remembered reading that the shares would be retired - now taking another look, I see some slight nuance in language and I think I may have mis-read it.
     
    In the 8-K it says 

    "Shares of the Company’s common stock purchased under the Purchase Agreement will be returned to the status of authorized but unissued shares."

    In the press release it says 

    "Shares of SGI’s common stock purchased under the Purchase Agreement will be returned to the status of authorized but unissued shares."

    I guess the AMRK shares are not SPGZ's to retire and that is an error. 

    1. I don't thinkt his has a material impact on the situation or the valuation. 

    2. It makes SPGZ look like a very interesting opportunity 


    SubjectRE: RE: Technical Question about Second Closing
    Entry03/18/2014 12:13 PM
    Memberstraw1023
    thanks. i have it adding a dime (+/-) of value to SPGZ shrs.
     
    also, i did  quick analysis of SWHC as a comparison for a guns-n-gold multiple and it certainly supports your multiple. I have SWHC trading at 10x peak P/E. And its peak is much more jagged than AMRK.

    also, for all you folks out there that love free money, you can buy 999 shrs of SPGZ for 50 cents and then have them bot for 65 cents soon. a classic odd-lot going-private opportunity. Even VIC big hitters like a free $150.






     
     
     

    SubjectRE: RE: RE:
    Entry03/18/2014 02:58 PM
    Memberaaron16
    SPGZ is an interesting situation. 
     
    All the board members obviously still own there stake, they are not just writing it off.
     
    From the 14A filed they sneak in that they are going to get a $12 million tax receivable (page 52). I believe most of the debt is attached to their headquarters. With the AMRK stock at current price, book value should be mid 40 million with pro-forma for future re-purchase 29 million shares.
     
    This is a business that has generated gross profits of $20m in 2013 and $30m in 2012. I always wondered if there was embedded pricing power in their auction services segment, why not just raise commissions on online auctions X %? If they can get the cash burn under control, why shouldn't it be worth tangible book? Roth has basically send they did not value firm at a liquidation basis when looking at the consideration to minority shareholders (cashed out .65).
     
    I think there is potentially an interesting story here, especially because of the people involved and how they have created value throughout this situation, but I am really not sure what it is worth.
     
    Interesting to Look at SWHC as a comp. I had not done that. Again, I think we agree this business is a little more stable than SWHC. The worst thing from an earning perspective is not a return to pre 2008 mentality / gold prices. It is general econominc pleasantness. Just a slow gradual grind to nirvana. If there any large scale concerns about China, QE, US economy, European economy, Crimea, Syria, Iran, future gold prices, etc. This business makes a ton of money.
     
    And as a kicker it should appeal to yield oriented investors.  

     

    SubjectRE: RE: RE: RE:
    Entry03/18/2014 03:07 PM
    Memberstraw1023
    do we know the exact date for the going private transaction? when is the last day to convert our 999 share to 1,000+?

    SubjectRE: RE: RE: RE: RE:
    Entry03/18/2014 03:20 PM
    Memberaaron16
    In earlier filings they mentioned once the spin was complete they would call a special meeting to approve the going private transaction. This meeting to my knowledge has not been called, I would imagine there would have to be some sort of filing / press release. 
     
    re. last day to own shares - I am not sure 

    SubjectRE: RE: RE: RE: RE:
    Entry03/19/2014 08:30 AM
    Memberaaron16
    http://www.sec.gov/Archives/edgar/data/895516/000089551614000023/amendment2_schedule14a.htm
     
    I have not gone through this in detail but: 
     
    as of 12/31
     
    $23m net current assets
    $14 tax receivable
     
    $45m in book value
     
    + 500k AMRK shares
     
    at current price = $7m 
     
    adjusted book = $52m 
     
    Business did $10m in gross profits in first six months, and lost about $8m. A significant part of this is the seperation expenses, but need to do deeper dive. 
     
     

    SubjectRE: RE: RE: RE: RE: RE:
    Entry03/19/2014 10:20 AM
    Memberstraw1023
    I ran the numbers on SPGZ pro forma for after spin; after second buyback.
     
    shrs: 28.1mm * 50 cents = $14.0mm
     
    They will purchase 1.5mm of own shrs (included in 28.1mm) and 0.4mm of AMRK shrs for $2.10 * 1.5 = $3.2mm. The AMRK shrs are worth $5.3mm.
     
    So TBV = $42.0mm - $3.2mm + $5.3mm = $44.1mm
     
    versus mkt cap = $14.0mm
     
    -----
     
    Further, the balance sheet could be fairly efficiently liquidated. We would not get $44mm, but we would get a lot more than $14mm.
     
    -----
     
    This all comes down to the intentions of the private owners. Are they going to liquidate? If so, then it is a buy. Are they looking to sell the business (or liquidate) if they cannot quickly turn it around? If so, then it is still a buy? But if they are looking at it as a VC investment to make a go of it and keep trying until they use up all cash, etc, then it is probably not a buy.
     
     
     
     

    SubjectRE: RE: RE: RE: RE: RE: RE:
    Entry03/19/2014 11:05 AM
    Memberaaron16
    Straw,
     
    I think there is value here and that the board will try to realize it. 
     
    The question is when? Is this a 2 year situation, a 4 year etc? I can't tell. Maybe the board looks to monetize the AMRK and distributes the tax receivable as a special dividend in a year? 
     
    When I got involved, I was always interested in the AMRK piece, and felt that the SPGZ component was worth something but likely to be very illiquid. 
     
    I too was shocked by the volume in SPGZ on Monday and took some off the table, not because I think its worth less where I got out .60-.70 but because I'm not sure if its worth .80 or $1.20 and I just dont know if this is going to be tied up for 2-4 years, and it was a large part of my book 
     
    The board is clearly patient. They put this transaction in motion in 2011 and have had their money tied up since September 2012, and will likely be tied up for sometime going forward (reason why I believe they aggressively pay dividends from AMRK)
     
     

    SubjectRE: RE: RE: RE: RE: RE: RE: RE:
    Entry03/19/2014 11:53 AM
    Memberstraw1023
    aaron,
     
    to me, this all comes down to the competency and intent of the insiders--after odd-lot take outs mgmt and board going to own 60+% of shares so they control the fate. if this is charlie ergen, then I am buying . . .
     
    I have looked at the businesses online and the numbers, and I do not understand the end-game here. If the intent is to be a long-term standalone company, I am a seller. There is no huge upside even if they "win" and I do not see how they can cut there way to profitability.
     
    It seems to me that they either need to liquidate or sell fairly quickly. Making a go of it for five years and then liquidating or selling is not going to yield a good IRR (and might get you a bagel).
     
    So, to that end, have you spoken to any of them about their intentions here? Assessed their competency?
     
    It is enticing to buy a company at 1/3 of TBV . . . 
     
     

    Subject2nd quarter earnings
    Entry03/27/2014 09:52 AM
    Memberaaron16
    AMRK just released stand-alone earnings for the 2nd quarter which ended 12/31
     
    1. The company will begin holding regularly conference calls starting beginning with the 3rd fiscal quarter which ends 3/31
     
    2. The numbers are quite good,  but EPS is obscured by two items
     
    Gross profits were $7.8 million for the quarter up 25% YoY 
     
    G&A was up from $2.9m to $4.5. The increase was attributed to the recruiting and retention of key employees. I view this as non-reocurring.
     
    The share count used for the EPS calculation is 7.7 million, but after the re-purchase from Afinsa it is now 7.4 million
     
    Adjusted EPS is probably closer to 41 cents which puts the business at a very nice run-rate. 
     
     

    SubjectRE: 2nd quarter earnings
    Entry04/24/2014 04:37 PM
    Memberstraw1023
    aaron,
     
    Any new thoughts? We have been adding in here. This is the sort of name that has gotten hit hard over past month for no reason specific to itself. Now trading at 6x.
     
    thanks

    SubjectRE: RE: RE: 2nd quarter earnings
    Entry04/24/2014 09:44 PM
    Memberstraw1023
    love to see that deck. dropbox it . . .

    SubjectRE: 3Q / First conference call
    Entry05/21/2014 07:58 PM
    MemberMSLM28
    aaron16,
     
    What are your thoughts in regards to the CFC finance business and do you think they are over earning given pricing at 8% - 9%? Finally, am I correct to assume that a vast majority of interest income is derived from this segment?

    SubjectRE: RE: 3Q / First conference call
    Entry05/21/2014 11:08 PM
    Memberaaron16
    MSLM28 -
     
    Your assumption is correct.
     
    This is the only part of the business that is tied to gold prices. As gold prices decline the dollar amount of the loan decreases as the amount of ounces financed stays fixed. In that regard it has become relatively less attractive as gold prices have declined over the past year.
     
    I am not sure if they are over-earning. It seems like a niche-product (while it is not broken out in the current filings, if you go back to the old SPGZ 10-K's you can see that this business has a fair amount of concentration) that I am not sure a lot of firms have the ability to offer. The lender would need to have the ability to securely store and if necessary manage the collateral. The size of loans ($1-$3 milion) seem large enough that its not an institutional sized transaction, yet I don't know how many smaller collateral lenders are making these size loans. If the lender didn't have the ability to easily store / manage the collateral, I would imagine the LTV would have a massive haircut due to gold price volatility. If you have a large investment in gold and want temporary liquidity (3 months to 1 year) the higher LTV may compensate for the higher rate. When you put it all together, I can see why its possible that the business has persisted in current form for some time.
     
    Higher level, management seemed excited about opportunities to move into additional parts of the secured lending / structured finance space. Judging from their tone they seemed very focued on mine-off take agreements as they think the larger investment banks have abandonded the middle-market. I am sitting down with management the 3rd week in June and plan to flesh this all out.   
     

    SubjectTulving
    Entry06/19/2014 12:18 PM
    Memberstraw1023
    aaron,
     
    I have been meaning to ask you whether you think Tulving bankruptcy/fraud is a big deal and will affect the structure of the industry. Is it an opportunity for A-Mark? 
     
    I am not referring to Tulving's direct debt with A-Mark. I am referring to the general murkiness of the industry.
     
    Thanks

    SubjectRE: Tulving
    Entry06/19/2014 01:52 PM
    Memberaaron16
    Straw -
     
    I have not been following the case too closely, but it doesnt seem like a big deal or that it will effect the structure of the industry. 
     
    I do think the general murkiness of the industry is an opportunity for AMRK, and is sort of the impetus behind their move into the whole retail value chain. 
     
    They are trying to get closer to a few of the major internet retailers. This will enable them to handle their product financing, handle their fulfillment, and offer their CFC business to the end purchaser. 
     
    In the last quarter they actually made a small investment in one of these retailers (500k pg. 12 in the 10q) and is something that they will look to do going forward, but they are doing it cautiously as they don't want other customers to think they are aggressively competing against them. 
     
    I think it is possible that it adds more legitimacy to the retailers that they back. 
     
    What do you think? 
     
     
     

    SubjectRE: RE: RE: RE: update
    Entry09/05/2014 12:31 PM
    Memberaaron16
    Hawaii -
     
    They will be announcing earnings on September 20th (approx. same as last year as their end of year is 6/30). I spoke with mgmt yesterday, I am just getting my notes together and want to confirm a few things as it was a quick 1 on 1 at a conference. 
     
     

    Subjectupdate
    Entry09/17/2014 09:20 AM
    Memberaaron16

    Wanted to share a quick update.

    Here is their presentation from the Liolios Conference on 9/4

     https://www.dropbox.com/s/68s5g6182heoy6e/AMRK%20IR%20Presentation%20-%20Gateway%20Conference_v2.pdf?dl=0

    It should note that the share count is 500k shares lower than in the presentation. Trailing 12m EPS is $1.80 with trailing P/E of 6.3x.

    Earnings will likely be released on the 25th with a call on the 26th. There will be a press release in next few days when it is finalized.

    Overall, I do not think anything has changed to the story. There secured loan book has been growing nicely which should be a positive. They are continuing their expansion into the retail space and we should start to see the impact of these initiatives in this quarter. On the European front, I am not sure where management and I got our signals crossed, but this team WILL NOT be adding $10-15m of gross profits this year. They really got started in April / May and their book of business sounds like it's meaningfully lower, probably around a couple million. They think there is a great opportunity to grow this business but it will not have a large immediate impact. As previously alluded to this would have just been gravy. 

    If there are any specific questions, I am happy to do my best to answer them. 

     
      Back to top