Update: Sprott Inc. Earnings Turn Positive As Revenue Soars

Aug. 7.14 | About: Sprott Inc. (SPOXF)

Summary

Sprott Inc. earned $5 million--up $11.7 million--on revenue of $30.4 million--up over 80%.

As I suggested in January the company's AUM losses last year were due to falling precious metals prices, and the 2014 reversal has led to a 10% Q2 increase.

The company continues to grow faster than the gold price, although expect near-term weakness after the recent $60 million secondary offering.

Sprott Inc. (OTCPK:SPOXF) just announced relatively strong second quarter earnings. The company earned $5 million or $0.02/share on revenue of $30.4 million vs. a loss of $6.7 million or $0.04/share on revenue of $16.6 million in the second quarter a year ago. Assets under management, which is a key measurement for asset managers, grew from $7.1 billion a year ago to $7.8 billion as demand for precious metals and related investments has begun to rebound.

Sprott had an eventful quarter led by the company's 23 million share secondary offering of shares that had been previously held by Eric Sprott, who has been winding down his ties with the company (last year he resigned as a fund manager. However we see that the company is still dedicated to providing the market with leading precious metals investing vehicles as it launched the Sprott Gold Miners ETF (NYSEARCA:SGDM), which owns precious metals mining companies weighted according to growth and balance sheet quality, making it a desirable alternative to the Market Vectors Gold Miners ETF (NYSEARCA:GDX).

As I argued back in January the company is growing despite the fact that its AUM has been shrinking. The latter can be attributed to the cyclical bear market in the precious metals and related miners as this is an asset class that Sprott heavily invests in. Investors should note, however, that corrected for gold the company's AUM was relatively flat as the gold price rose about 10% from June 30th, 2013 to June 30th of this year. However, longer term I think that Sprott will be able to grow its assets at a faster pace than the growth of the precious metals sector more generally as Sprott has curved out a market niche for itself as a leader in the precious metals space. While the gold miners ETF is still too new the company's older funds--the bullion trusts [gold (NYSEARCA:PHYS), silver (NYSEARCA:PSLV), and platinum and palladium (NYSEARCA:SPPP)] have shown marked growth over the past few years. Thus, as the secular bull market in precious metals resumes in the next couple years Sprott Inc. will be extremely well positioned to outperform. Investors looking to take a position should note that there is still weakness in the precious metals space, and also that 23 million shares just hit the market, which could put pressure on the stock in the near term.

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