- The below article was initially posted to Stockhouse on November, 8th 2020 when the price of NWLNF was $0.16 or the equivalent of a $1.92 Abaxx share.
- Abaxx's Singapore exchange license is likely worth $2.35 per share.
- Abaxx's technology business will be rolling out a sign and verify application in Q2 2021.
- Using Docusign as a comparison it is projected that the Abaxx tech business could be worth $8.32 per share in the near term.
- The total near term valuation for the Abaxx businesses is $10.70 per fully diluted share.
*Please note that this blog post was originally posted on Stockhouse on November, 8th 2020. Readers can view the original post at the following link.
With the recent run up to $0.205 CAD per share I think it’s good to take a step back and consider what the potential is for Abaxx Tech and Abaxx Exchange in the next year or two, and given that potential what is an appropriate post RTO valuation. In summary—I’ll explain further below—my near term valuation target for Abaxx is $10.70 per share, or the equivalent of $0.89 per pre RTO NML share. Furthermore, I think as Abaxx starts to prove out its Exchange and Tech Applications the company will run much higher than that in the months and years to follow. Here’s how I came to that conclusion.
The Abaxx Exchange will be an innovative commodity exchange based in Singapore—probably the best place in the world right now for a commodity exchange. Abaxx believes that their software platform can increase execution velocity, price discovery, and security by leveraging web 3.0 characteristics of deep learning, AI, distributed ledgers (i.e., blockchain tech), and secure web protocols. That sounds like a lot of buzz words (and it is), but these technologies when combined have significant potential to upend industries—particularly those that have been slow to adopt new technology, are heavily bureaucratic (or both). Global exchanges have few players (i.e., ICE, or LME) and have been slow to adopt new technology, and are thus ripe for disruption. The Abaxx Exchange seeks to seize on this opportunity, gain a foothold, and then build on it from there.
Initially the Abaxx Exchange believes their highest chance for success is to create a mostly novel LNG market in Singapore that will be the hub for all Asian spot market trading of LNG futures. This is extremely lucrative as there are currently few LNG marketplaces, and no dominant player has really emerged. Additionally, the Paris climate accord and green energy revolution means that global players will be incentivized to move away from dirtier hydrocarbons like crude oil and coal, and towards cleaner hydrocarbons like LNG. Furthermore, LNG is a large and growing market that predominantly utilizes crude oil futures for hedging. This fact means that Abaxx’s LNG exchange will grow as LNG sees increased volumes going forward AND as market participants begin to use LNG futures instead of crude oil futures.
Additionally, Abaxx has the potential to use it’s software platform to move into other commodities like gold, copper, nickel, iron ore, cotton, real estate, and other categories. Once successful with LNG, the shift to other commodities could be very quick and Abaxx could become a major exchange player globally.
Regarding timeline, in September Abaxx received regulatory approval for the exchange. Final approval should be received in December, or January. The exchange can be launched as early as Q1, but probably in Q2. One minor hold up described in the information circular is that Abaxx will need to have a $10 million Singapore dollar cash buffer to operate. Abaxx will probably find this cash buffer by selling a small portion of the Exchange to another player. This would drop Abaxx’s equity stake in the Exchange from 81% to a lower stake, but would also de-risk the last hurdle to operation. Should the investor be a major global commodity player this could also add value to Abaxx by legitimizing the exchange and driving business to both the exchange and to the tech platform. Think if Glencore, Trafigura, or ICE were to be involved, that could make things quite interesting.
Regarding valuation for the exchange, as I mentioned in a previous post, an exchange license in Singapore was bought in 2013 by ICE for $150 million USD. If we give the same valuation to Abaxx, then their 81% interest would be worth $121.5 million USD, or $162 million CAD using an exchange rate of $1 USD to $0.75 CAD. With 68.7 million fully diluted shares outstanding, this would give a fully diluted valuation to the Exchange license alone of $2.35 per post RTO share or $0.197 per pre RTO share.
This valuation doesn’t even account for the lucrative potential of the LNG exchange, or the future commodity exchanges that can be setup by Abaxx Exchange. It is fairly easy to see Abaxx quickly building a market for the LNG contracts and creating revenue of $10+ million within a year and growing quickly from there as their exchange (and software platform) become more broadly adopted by market participants.
The Abaxx Tech business is 100% owned by Abaxx, and has two interesting arms. The first arm is the Master Licensing Agreement “MLA” and royalty agreement on the Abaxx Exchange. In the information circular, the MLA is described as follows:
“Abaxx Singapore has agreed to pay the Company earnings if in the future it sub licenses the Exchange Technology, in which case as a result of the MLA royalty fees would be as follows:• An amount equal to 20% of revenues on the first $2,000,000 USD;• An amount equal to 10% of revenues on the next $3,000,000 USD; and• An amount equal to 5% of revenue on any excess revenue.”
Additionally, for a price of $10 million USD, Abaxx Tech has the ability to increase their revenue royalty by 1% to 6% of revenues of Abaxx Exchange. This disclosure in the circular means that Abaxx Tech is likely going to use royalties from the Abaxx Exchange to fund growth of the tech business going forward. If the Exchange really takes off, this royalty could be very lucrative.
Furthermore, Abaxx Tech has significant plans to monetize their software applications above and beyond just the Singapore exchange. In the information circular, Abaxx indicated that in Q2 of 2021 they plan on creating an online market campaign AND an enterprise sales team for their technology applications, specifically the Chat, Verify, and Sign applications (see page 161 of the circular). This is extremely intriguing, and to me is a major value lever for the company in 2021 and beyond. Here’s why.
Docusign (DOCU), which is the dominant player in the online contract space, indicated in an investor conference in September of this year that the total addressable market for their products is $45 Billion USD per year (see this article from the Motley Fool from earlier this year 3 Signs DocuSign Could Be the Future Leader of a $45 Billion Industry | The Motley Fool). The current market cap of Docusign is $43 Billion USD, with trailing twelve month revenues of $1.1 billion. That means that Docusign is trading at 39 times their sales from last year! If Abaxx could take just 1% market share from Docusign in late 2022, then they could generate $11 million USD or $14.7 million CAD in sales from the application. Giving a multiple on that business of 39 would give you a valuation of $572 million CAD. This would equate to $8.32 per post RTO shares, or $0.694 pre RTO shares. Can you imagine if they could take 10% market share from Docusign?
Putting it All Together
If you add the conservative liquidation valuation from the Exchange of $2.35 ($0.197 pre RTO), plus the potential valuation of the Abaxx Tech contract application of $8.32 ($0.694 pre RTO), you get a total valuation of $10.70 ( pre RTO price of $0.89).
Analyst's Disclosure: I am/we are long NWLNF.
I own NWLNF, and will own 84,000 post RTO Abaxx shares.
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