Has The Abaxx Train Left The Station? I Think Yes.
Long Only, Value, Special Situations, Contrarian
Seeking Alpha Analyst Since 2009
Summary
- This blog post was initially posted to Stockhouse on 10/18/20 when the price of NWLNF was $0.07 USD.
- Huge insider buying from NML insiders indicates their support for the proposed Abaxx RTO.
- Abaxx's CEO will likely begin to promote the company and its upcoming RTO via public appearances.
- Abaxx Technologies and Abaxx Exchange appear to have enormous near term potential, and could result in a large amount of investor interest in their upcoming RTO.
*Please note that this blog post was originally posted to Stockhouse on October, 17th. You can read the original post at the following link.
Has the Abaxx train left the station? I think yes.
Given the nice run up over the last week I wanted to post a few thoughts. As always please do your own due diligence prior to making any investment decision.
A few thoughts on the price action since the RTO
- Abaxx Technology and Abaxx Exchange Twitter accounts were created on October 14th, the same day that Josh Crumb went on Hedgeye to discuss gold and various other macro issues. He also briefly touched on his new startup as well, but didn’t really give a big pitch at all. If you’re going to own NML through the RTO transition it would likely be wise to follow Abaxx (the Exchange and Technology accounts) in addition to Mr. Crumb on Twitter.
- The date of record for the NML AGM proxy vote was October 14th.
- If I had to speculate, it seems as if Abaxx and Mr. Crumb held off on promotional activities until the last day of record for NML shareholders. I would imagine this meant that Abaxx insiders likely were asked not to purchase NML shares during this period as well so as to avoid a major conflict of interest COI. Had they been allowed to purchase NML shares then they could influence the vote.
- Given point 3, I think this explains why NML traded in a fairly tight range for the last month between $0.8 - $0.85 per share.
- In retrospect the last month prior to the date of record on the 14th was essentially a gift to current shareholders to increase their future stake in Abaxx at the private placement price of $0.0825 before the larger market became aware of the opportunity.
- If you look on SEDI, you’ll see that NML insiders purchased about 1.27 million shares since the Abaxx announcement at prices between $0.08 - $0.10. Mario Caron has so far purchased 715k, Daniel Owen purchased 312k, and Scott Leckie purchased 243k.
- I think many NML investors have been slow to realize the potential of Abaxx due to the fact that many NML shareholders are deep value investors looking to turn $0.50 into a $1. When confronted with a very attractive growth opportunity in Abaxx, these investors (including myself) had to switch mental models—and that’s tough to do. I had to stop thinking about price to book and liquidation values of assets, and start considering the potential future cash flows of the Abaxx businesses.
- Given points 1 through 7, and also given what I’ve been able to glean about Abaxx I also added 230k shares myself (most recently bought 130k this past Friday at the equivalent of $0.10 CAD), bought the other 100k at the equivalent of $0.0825 CAD).
What happens next?
I’m not sure, but I think Abaxx will likely get more and more press as we get closer to the RTO creating a buzz for the stock and for the potential around both the exchange and technology businesses. Mr. Crumb seems to have an Elon Musk type feel to him, where he is a serial entrepreneur who has several successful startups previously (Mene and GoldMoney), and Abaxx appears to be his Tesla. I’ve listened to a number of his interviews to date and he strikes me as both cerebral and personable, but also very much in tune with global markets having spent a number of years at Goldman Sachs. He has clearly got the ear of a number of large billionaire investors in Kyle Bass, Robert Friedland, and Lukas Lundin, as well another influential investor in Peter Schiff. These big fish investors don’t strike me as the type to bail after the RTO date, I would imagine that they see Abaxx as having the potential to be a billion or maybe even multi-billion dollar company.
It’s not hard to see this type of company catching the eye of Wall Street or other large institutions, and getting some analyst coverage early on. If those investors want to buy in before the RTO, the only way they can do it is through NML, which doesn’t have any institutional investors currently. Should somebody want to buy a big chunk of stock, it will no doubt put pressure on the share price to the upside as the bid will far outweigh the ask and the result will be the stock climbing quickly higher. I think we started to see this a little over the past week when the stock shot from $0.085 - $0.11 (bid is currently at $0.115). It’s not hard to imagine the stock climbing to $0.165 or maybe even $0.20 prior to the RTO in my opinion.
OK, but what about the businesses?
We still don’t have solid information on valuations yet, but from what I can gather it looks like the Abaxx Exchange (which opens in January, 2021 I believe) has the real potential to bring in $10 to $20 million USD in revenues in the near term (maybe even more than that). Furthermore, the technology used for the LNG platform could be used to create additional exchanges for other commodities like Gold, Nickel, etcetera (see Abaxx Exchange website for additional details). LNG plays into a broader shift in global policies towards cleaner energy that can help reduce the impacts of climate change, but still keep economies going. While renewables are great, they are just a piece of a region’s energy portfolio, and while coal and crude oil are declining in use, LNG is picking up. Below is a good article from Reuters on LNG demand (particularly in Asia) over the next few decades.
Global LNG demand to rise for next few decades, COVID a temporary blip - industry
Around two thirds of the growth in LNG demand in the next decade will come from China, India, Pakistan and Bangladesh, according to Wood Mackenzie.Industry executives from India and Taiwan said LNG demand in their countries is growing this year, while most speakers agreed China will be the key driving force for LNG demand in coming decades.China’s gas demand is expected to exceed 600 billion cubic metres (BCM) per year by 2040, up from just over 300 bcm per year in 2020, according to Ming Cai, natural gas and LNG consultant at Poten & Partners.
It should also be noted that many LNG traders use crude oil futures instead of LNG futures to hedge. I believe one of the goals for Abaxx is to make their LNG exchange the gold standard for LNG trading. If they can accomplish this then LNG traders would move away from using crude futures and move towards using the Abaxx exchange. Accomplishing this goal could be huge, and is likely one of the reasons that they have a very deep bench of executives associated with the Abaxx exchange.
The second line of business is a software as a service SAAS model that will fully integrate commodity trading platform applications into a single ecosystem. You would have file sharing, video conferencing, chat messaging and financial operations all on a single platform with a single cloud. Today it’s not uncommon for users to have Box for file sharing, Slack for messaging, Skype/Zoom for conferencing, and then another software for financial transactions and commodity trading. Abaxx hopes to bring all those functions under one roof. While still a few years off, if Abaxx can effectively market this technology (check out Josh Crumb’s twitter feed for more info) then that could also turn into a multi-billion dollar business in its own right. Look at other fintech companies and the market caps and multiples they have as a point of reference.
Conclusion
If you add all of the above together I think you have a fantastic opportunity to get in on the ground floor on an emerging fintech AND commodity exchange play that both have tremendous growth opportunities. The management team at Abaxx Exchange and Abaxx Technologies, combined with high caliber investors leads me to believe that Abaxx is the real deal, and could be two very successful businesses in several years time. As to stock price, we are still not terribly far away from the private placement price of $0.0825, and I expect animal spirits to take over and drive a potential frenzy leading into the RTO date of November 30th. Could this hit $2.50 - $3 per share (the equivalent of $0.20 - $0.25 per NML share) come December or January, I think that’s certainly in the realm of possibilities. The next 6 weeks should definitely be a wild ride.
Again, please note that you should do your own due diligence before making any investment decision, the above is just my two cents on the matter. What do others think?
Analyst's Disclosure: I am/we are long NWLNF.
I am long NWLNF and will own 84,000 post RTO Abaxx shares.
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