On July 13, we wrote a bullish report on Simply Better Brands Corp. (PKANF)(SBBC.V). Our conclusion was that the stock had 10x upside from a $0.25 stock price. It nearly quadrupled to as high as $0.96 in a week, but then management announced a completely ill-timed financing, giving no consideration to the retail shareholders who have supported this stock. With a convertible debenture at the election of the holder at $0.39, almost certainly this will be converted at some point in time, unless management continues with these dilutive financings that pace with revenue growth to keep the stock price below that exercise level. Therefore we expect the shares outstanding to be approximately 65 million, and must decrease our target to reflect that - from over $2.50 to approximately $1.25. That still leaves 4x upside from Friday's close. If investors can get in below the equity financing part of the deal at $0.295, it's still worth a long. As we have told readers before, it's always a good idea to take some off the table if a stock moved quickly, so hopefully buyers at low prices took something off the table and have more than a few pennies gain to show for it.
While SBBC has been disappointing, there is another opportunity out there that we are quite sure won't dilute shareholders at low prices as a recent transaction has made it cash-rich and it has a history of not only not diluting shareholders, but actually buying back shares. This is GobiMin Inc. (GMNFF) (GMN.V). While SBBC's valuation could be up to each individual's interpretation of the value of its revenues and heavy growth, there is no ambiguity with GMN. It's most definitely undervalued with more than a 100% upside after a transaction that was announced 10 days ago and we expect that gap to close soon. We are up to 1,005 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can also follow this blog by clicking the follow button on the top of the left hand panel. We have 89 followers so far on here. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.
Toronto, Canada, July 14, 2022 (GLOBE NEWSWIRE) -- (TSXV: GMN) GobiMin Inc. (“GobiMin” or the “Company”, together with its subsidiaries collectively the “Group”) is pleased to announce that it has entered into a definitive agreement to sell the 100% indirect equity interest in a wholly-owned subsidiary, which owns the 70% indirect equity interest in the company holding the mining licence of the Sawayaerdun Gold Project, to a subsidiary of a Hong Kong listed mining company which is an independent third party to the Group (the “Buyer”) for approximately CAD95 million (USD74 million) in cash, which will result in net proceeds to the Company of approximately CAD88 million (USD68 million) after payment of Chinese taxes and transaction related expenses (the “Disposal”).
The Group shall receive from the Buyer the consideration, net of the withholding tax payable to China, after the registration of the equity transfer with the local authority and the completion of the handover. The Disposal is expected to be completed on or before September 30, 2022.
Mr Felipe Tan, president and Chief Executive Officer of GobiMin commented as follow: “the decision to sell the Gold Project has been arrived at a careful consideration of all options open to us under the current economic and market conditions. The Disposal enables the Group to maintain a strong financial position and the net proceeds from the Disposal can be used for pursuing new business opportunities.”
The Disposal is an arm’s length transaction as defined in the policies of the TSX Venture Exchange.
As of April 22, 2022, GMN had 49,194,982 shares outstanding, with no outstanding warrants or options - very unusual for a TSXV stock. That number is actually down to 49,183,982 as the company has bought back shares as part of a normal course issuer bid:
Under the Bid, a total of up to 2,459,749 common shares may be purchased through the facilities of the TSXV, representing 5% of the issued and outstanding common shares of the Company, and any such purchases will be at market prices. All common shares purchased pursuant to the Bid will be returned to treasury for cancellation. The Bid will commence on or after April 29, 2022 and will end on April 28, 2023 or on such earlier date as GobiMin may complete its purchases pursuant to the Bid or as it may otherwise determine. Purchases pursuant to the Bid will be conducted through Raymond James Ltd.
Seeing such a shareholder-friendly structure, tight float and buy back of shares is very unusual behavior for TSXV stocks. That's why we think this stock can go up to its fair value very quickly. The stock is thinly traded, but now management has free reign to buy up 2.4 million shares on the open market when it has taken only about 800,000 shares combined over the past seven trading days since the deal was announced to take it from $0.20 to $0.88 CAD from both the Venture and OTC listing volume.
What is that fair value? In addition to the $88 million in CAD after payment of taxes and transaction costs, the company has $19.6 million in cash and other short term assets against $2.8 million in liabilities for $16.8 million USD worth of liquid net assets as of March 31, 2022. Translated to CAD, that's over $21 million. The fair value is $109 million divided by shares outstanding or over $2.20 CAD.
The company has the ability to increase this per share value by buying back shares below this amount. Let's say it purchases 2 million shares at $1.25 per share. The share count reduces to 47.2 million while the net cash balance reduces to $106.5 million, resulting in a $2.25 per share value. GMN is a clear buy here at anything less than $1.00 with a history, ability and incentive to buy up any cheap stock that remains.
Disclosure: We are long GMN.V
