U.S. Global Investors, Inc. (NASDAQ: GROW) is a registered investment adviser that focuses on niche markets around the world. Headquartered in San Antonio, Texas, the Company provides money management and other services to U.S. Global Investors Funds, U.S. Global ETFs, and other international clients.
On Sep 21st, GROW announced that it has entered a strategic investment in HIVE Blockchain Technologies Ltd. (TSX.V: HIVE). U.S. Global Investors has exposure to 17 million shares of HIVE. Subsequently, Frank Holmes, CEO, and chief investment officer of U.S. Global Investors, has been appointed as the non-executive chairman of the Board of Directors of HIVE.
HIVE Blockchain Technologies Ltd. commenced trading on the TSX Venture Exchange on September 18, 2017. This follows the completion of a $16.5 million equity financing, as announced on September 7, 2017, and the closing of the acquisition from Genesis Mining Ltd. (“Genesis”) of a state-of-the-art GPU-based blockchain data center in Reykjanes, Iceland, and formation of a strategic partnership with Genesis (collectively, the “Transaction”), as announced on September 15, 2017. Genesis is the world’s largest crypto currency mining firm.
As per management, GROW is excited to be part of this massive opportunity in the crypto currency space and having a first-mover advantage in bringing it to investors. HIVE is creating new coins, with the goal of selling a portion of these and then banking the rest in order to manage this opportunity in a fast growth industry.
Blockchain technology has the potential to fundamentally change and lower transaction costs. HIVE’s partnership with Genesis provides immediate exposure to operating margins of crypto mining and a growing portfolio of coins. That makes this a unique global company out of the gate.
In fact, “The Economist” has reported that annual revenues earned by the banking system for processing payments were at $1.7 trillion in 2014, which was 2 percent of global GDP at the time. Bankers are moving fast to prevent disruptive technology from ‘Uber-izing’ their business, just as cab companies are fighting back against ride-hailing apps. According to CoinDesk, 28 of the top 30 banks are now engaging in blockchain proof of concepts. Goldman Sachs has even said that ‘the blockchain could disrupt everything.’
Today cryptos have become a strong alternative investment tool because they are pretty much a portable, durable, anonymous, divisible, convenient, and consistent investment opportunity for investors across the globe. In fact, to make it simpler, today an average retail investor doesn’t have access to, or the capital for, the gold futures market. This class of investor would often buy the gold ETF. However, a large segment of those potential gold ETF buyers are considering cryptocurrencies now. The cryptocurrency market has traded over 300% more, on total dollars traded basis, than the largest gold ETF, GLD.
Which is why, post listing, HIVE received huge amounts of interest and funding from all class of investors. Because of the success of HIVE, we could see many more similar offerings in the near to medium future. Therefore, future crypto-related currencies and securities would draw even more money and attention that would otherwise be destined for other classes of investment.
Bitcoin and all the other cryptocurrencies are gaining momentum, which is evident by the increasing trading volumes. The traction in cryptocurrencies space continues to impinge the physical gold market and banking industry and with the huge funds on the sidelines waiting to be able to get exposure to the sector. When this comes in, it could be a huge step forward for cryptocurrencies.
Driven by the abovementioned factors, Traders and investors seem to be pricing GROW positively. The stock currently has an average rating of “BUY” and a consensus price target of $3.50. Considering present valuation, GROW is at an extremely favorable risk reward position.
About the Company: U.S. Global Investors, Inc. is an innovative investment manager with vast experience in global markets and specialized sectors. Founded as an investment club, the company became a registered investment adviser in 1968 and has a longstanding history of global investing and launching first-of-their kind investment products. U.S. Global Investors is well known for expertise in gold and precious metals, natural resources, and emerging markets.
Since 1989, U.S. Global Investors has been led by CEO Frank Holmes, who purchased a controlling interest in the company that same year. U.S. Global Investors is a publicly traded company (NASDAQ: GROW) headquartered in San Antonio, Texas.
Other Recent business highlights:
Launch of the U.S. Global GO GOLD and Precious Metal Miners ETF (TSX: GOGO) – On September 29th, GROW launched the U.S. Global GO GOLD and Precious Metal Miners ETF CAD (TSX: GOGO). GOGO is a smart factor, passively managed fund that is designed to track the U.S. Global GO GOLD and Precious Metal Miners Index (GOAUX). GOAUX is designed to capture the performance of companies engaged in the production of precious metals either through active (mining or production) or passive (owning royalties or production streams) means.
Growth in Asset under Management: Average assets under management in gold funds, a key driver of the company’s revenue, increased substantially over the last fiscal year. However, gold began to stall beginning in the fall of 2016, as investors awaited the results of the U.S. presidential election and the Federal Reserve started raising rates.
Average assets under management for the fiscal year ended June 30, 2017 were $843 million compared to $744 million for the fiscal year ended June 30, 2016, an increase of 13 percent. As of June 30, 2017, total assets under management were $760 million, compared to $883 million as of June 30, 2016.
2017 Financial Results:
Revenue & operating income: The operating revenue of $6.8 million for fiscal year 2017 was a 23 percent increase over the prior year, when the company reported operating revenue of $5.5 million. This increase was mainly due to an increase in assets under management due to market appreciation in the gold funds. In addition, operating expenses decreased 21 percent year-over-year. Operating expenses for fiscal year 2017 were $7.6 million compared to $9.7 million for fiscal year 2016. The decrease in expenses is primarily due to outsourcing of certain functions to other providers, resulting in fewer employees, as well as nonrecurring transition costs included in the prior year’s expenses.
Liquidity: As of June 30, 2017, the Company had net working capital of approximately $16.3 million. Cash and cash equivalents totaled $4.0 million, and marketable securities totaled $13.1 million as of the end of the quarter. In addition, the Company has had no long-term debt since 2004 and owns its headquarters building.
The company estimates that it would have needed an additional $55 million in equity funds to break even for the year.
Dividend Policy: The Company has also continued to pay monthly dividends for more than 10 years. A monthly dividend of $0.0025 per share is authorized through September 2017. The latest record date was September 11, and the payment date will be September 25. The continuation of future cash dividends will be reviewed by the board of directors quarterly.
Share repurchase program: U.S. Global Investors has continued purchasing its outstanding stock. For the three months ended June 30, 2017, the Company repurchased 12,205 class A shares using cash of $17,000. The share repurchase plan was renewed for calendar year 2017 but may be suspended or discontinued at any time. Frank Holmes is purchasing shares pursuant to a Rule 10b-18 plan along with the Company repurchase program.
Net Loss: reported a net loss of $513,000, or $(0.03) per share, on operating revenues of $6.8 million for the fiscal year ended June 30, 2017. In comparison, for the previous fiscal year, U.S. Global Investors recorded a net loss of $3.7 million, or $(0.24) per share, on operating revenues of $5.5 million.
The three factors that most impacted the reduction in net loss were an increase in revenues due to higher average assets under management, a decrease in compensation expense due to fewer employees, and lower general and administrative expenses than the previous year, partly due to one-time transition costs in the prior year.
Key risk factors and potential stock drivers:
The company’s valuation is linked to the price movement in the junior gold mining stocks universe. Any adversities in the same would negatively impact the overall business risk profile of the company.
GROW is presently having net level losses. Therefore, any crunch in its liquidity and financial flexibility, will further impact its business & financial profile.
While cryptocurrencies have had generated huge gains, and are successful in attracting a large investor base, the large funds, institutional investors, and traders still favor gold over cryptocurrencies.
The cryptocurrency sector may be subject to risk related to Regulations, and for the cryptocurrencies to go mainstream, large investment funds will have to be able to access the platforms to speculate in the sector.
Stock Chart:
On Friday, September 29th, 2017, GROW closed at $2.13 on an average volume of 138,377.00 shares exchanging hands. Market capitalization is $32.34 million. The current RSI is 68.61
In the past 52 weeks, shares of GROW have traded as low as $1.25 and as high as 2.40.
At $2.13, shares of GROW are trading well above its 50-day moving average (MA) at $1.49 and above its 200-day MA at $1.51
The present support and resistance levels for the stock are at $2.05 & $2.20 respectively.
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