Bergio International (BRGO) A Diamond in the Rough

There are currently 3 billion shares authorized and they confirmed that they have no plans for a reverse split.  Investors are incorrect to assume that full dilution will occur after the CEO’s proclamation to the contrary. Investors are very slow to uptake the notion that Berge has stopped diluting despite his public announcement.  According to Berge $40 million would be a fair valuation for the company.  As investors watch the number of outstanding shares remain stagnant over time then perhaps they will believe that dilution stopped, but then they would have missed out on a 9 fold increase in the value of their shares.

Sales Growing Exponentially

From the latest 10-Q investors can get a sense of how sales are going to ramp with the acquisition of Gear Bubble.  The company guided $20.0 million in sales for the year and in the first 6 months they generated $3.3 million in sales and had gross profit of 80%, but this did not include Gear Bubble and included Aphrodites for a small portion of the quarter.  In the last half of the year they are expected to do $16.7 million.  They also guided that a bulk of their sales for the year are in the last quarter because of Christmas.  Using the 50% rule retailers whereby half of annual sales are in the final quarter that would mean $6.7 mil in the coming quarter and $10.0 million in the next quarter.  Going into the Gear Bubble acquisition their digital advertising costs ran very hot at 64% of their operating costs which whittles away at a good chunk of their gross margin.  If they can optimize their media advertising spends and achieve some synergies in their cross selling between businesses net margins could dramatically improve.

Next year they are estimating $40 million in sales but this is a modest estimate because Aphrodites did $10 million and Gear Bubble did $27 million in 2020 and both businesses were profitable.  The $40 million estimate assumes very little growth and it looks like they are setting the market up for big beats and constantly increasing guidance. In an Emerging Growth Interview Bergio said https://www.youtube.com/watch?v=9i5sacV5V2M&

“This market cap should be 30 – 40 million dollars. I’m just being conservative…We are jumping from $700,000 to 40 – 50 million dollars and I even think we are going to do more than that. I see a very very profitable 2022. I still think they are going to show some profit at the end of the year.”

On the surface these are just words, but nothing can express the exuberance in their voices.  Many investors will be well served if they just play the video.

E-Commerce Technology  – Not Just a Jewelry Company

Since the beginning of this year BRGO has undergone a huge metamorphosis from a brick and mortar jewelry store to an E-commerce technology company.  The CEO of Gear Bubble Donald Wilson stated “Gear Bubble also has Software as a Service (SaaS) – we would be profitable if we sold no business.” This is a very powerful statement because their underlying recurring revenue stream is so robust the company could survive without using its own platform. He explained that Gear Bubble is focused on technology and has 200,000 B2B merchants covering 7 million SKU’s.  They also have a technology officer with groundbreaking achievements like being one of the first platforms to integrate with Amazon.com (NASDAQ: AMZN) and Shopify (NYSE : SHOP).  He also has an overseas workforce of 50 – 60 people in Vietnam,Pakistan, and India dedicated to their platform solutions. This is now a technology company with earnings.  Their platform is being used on AMZN, Ebay (NASDAQ: EBAY), Etsy (NASDAQ: ETSY), and Facebook (NYSE: FB).  Facebook is one of their most profitable platforms but lack of supply last year caused them to suspend their offerings early in the holiday season.  They are bringing that back online with a greater offering of jewelry and supply.  Aphrodites also landed a platform of its own and just recently got started with Walmart (NYSE: WMT).  The bottom line is that BRGO is on all the top E-commerce platforms and as long as it keeps innovating new and original products it could quickly rise to dominance.

Manufacturing Supply Line

Before Aphrodites and Gear Bubble teamed up with BRGO, they were being supplied by middlemen distributors and were consequently missing out on the tremendous margins by going direct to the factory. Aphrodites got a big boost in margins once the company was folded in and started using Bergio’s suppliers. This had an immediate impact on their bottom line. Since mid-July many tweets have been focused on firming up manufacturing capacity in both Istanbul and Armenia, but he expanded the trip into Ukraine and Georgia to meet with their economic leaders. During his trip to Armenia he took a quick video of a 500 person manufacturing facility that he is planning on standing up with the help of the government.  He is negotiating a 50% purchase of the factory and was in the documentation and due diligence phase in early August.  Given the closeness to Christmas it’s possible the deal could close in mid-September.  Having this manufacturing capacity is an incredible asset going forward as they are less likely to have any supply disruptions and could better manage their inventory.  Meeting with the economic ministers was a fantastic move because he is likely working toward some government backed guarantees which should allow them to procure raw materials on credit eliminating any cash flow headaches.

With all their E-commerce initiatives they have still not lost their identity as a jeweler and expect to launch some of their offerings in time for the upcoming Christmas season.  Blue Nile is the largest online Jeweler, and was purchased by Bain Capital for $500 million in 2017. Berge hopes to be as big as them and thinks he can get there by being vertically integrated.

“I think we are going to take over the market in fine jewelry in a year or year and a half. “ – Berge Abajian

Their plans include a fine jewelry line, a fashion line, and a wedding line which may be live by Q4. One of the core competencies of Aphrodite’s CEO Johnathan Foltz is his website building experience with Digital Age Solutions.  They have the knowledge and experience to make a world class site. They are also working on a site similar to RoxsBox.com which is a jewelry subscription program.

Comparable Valuation

The best comparable is Charles & Colvard, Ltd. (NASDAQ: CTHR) to BRGO as a pure play in Jewelry. They cater to millennials in very much the same way Aphrodites does and they have a significant portion of their revenues come from E-commerce. They have gross margins of 46% compared to Aphrodites margins of 88%.  They have the same seasonal bump in sales in Q4 but they are slated to do between $12 – 13 million compared to BRGO’s expected $10 mil +.  When it comes to inventories and product mix they have to guess correctly or it will hurt sales whereas BRGO is virtually immune because with their new factories onboarding they will be able to do more of a just in time inventory. Non-performing inventory is the single biggest risk factor in the jewelry business. CTHR is also still dependent upon Brick and Mortar retailers like Macy’s.  They derive 60% of their sales from online channels compared to BRGO 100% E-commerce footprint.  It gets interesting when comparing sales and marketing expenses.  In the latest quarter CTHR had $2.2 million in expenses (23.4% of sales) versus $1.4 million in expenses (65.5% of sales) for BRGO.  As a percentage of sales BRGO is running hot, but they did buy a business and that represents a potential positive movement in the future.  BRGO doesn’t anticipate needing any more money to run the business so it’s reasonable to think that they have this under control. Neither company has significant debt but CTHR had a much healthier balance sheet of $19.7 million.

There are a couple different valuation metrics but market cap is by far the most important. CTHR has a market cap of $87 million but this needs to be adjusted by $20 million for their cash position so investors are looking at their enterprise value.  The enterprise value is $67 million and the company trades a multiple of 2.25 Calendar Year 2021 sales.  BRGO’s enterprise value is essentially its market cap of $4.5 million which assumes no cash.  Therefore BRGO trades at a multiple of .225 which is a 90% discount to the comparable value.  CTHR trailing twelve month P/E is 26.  There is no earnings guidance for BRGO in 2022 except that they will be profitable enough to pay off their debt and fund future growth out of cash flow. Assuming they do double the 1.1 million they need to pay for the Gear Bubble acquisition, that means they will have $.0038/share in EPS.  Take that and multiply by the P/E multiple of 26 and the result is $.10 is the price target.

Management Team

The team is led by Berge Abajian who has a number of years of public company experience.  He is also the jewelry guy tracing his roots in the jewelry business back to the 1930’s.  He is a third generation jeweler that is well versed in designing and manufacturing jewelry and is the creator of a number of custom jewel pieces. The CEO’s of his subsidiaries are Donald Wilson the CEO of Gear Bubble and Jonathan Foltz the CEO of Aphrodites. All 3 of the top management are entrepreneurial in their own right and see incredible synergies by stitching these companies together. Wilson brings technology to the table and he was the one responsible for integrating his selling platform on Amazon providing a SaaS product that sellers had to have. Gear bubble was founded 6 years ago. Foltz is the branding and the marketing guy.  He started out consulting and bringing in traffic for his clients and then he started a jewelry focused website for himself and then it just took off and blossomed.  He has been designing E-commerce websites for the past 12 years and has experience in block chain, AI, and branding.  If this team had a mission statement its to bring products to market faster and scale globally.

Metrics at a Glance

• 88% GM – Aphrodites
• 50%+ GM – Gear Bubble
• $20 million      FY 2021 Revenues Projected
• $40 million      FY 2022 Revenues Projected
• Acquisitions
  • $3.162 million – 50% of Gear Bubble $27 mil/annual sales
  • $5.0 million – 100% of Aphrodites $10 mil/annual sales
• E-Commerce Platforms (Amazon, Ebay, Etsy, Facebook, Walmart)

Potential Catalysts

• Sept: Closing of Armenian Factory
• Oct: Q3 Earnings report $6.7 mil Est – potential profit?
• Oct: Fashion & Wedding Website Launches
• Jan: Q4 Sales 10.0 mil+ Est
• Feb: Stock buyback
• Mar: Future acquisitions
• April: Celebrity Influencers Join

Investment Summary

This is a value play in the E-commerce sector which is precisely a contradiction of terms because there are very few small E-commerce companies actually making money. E-commerce companies spend huge sums of money curating a user base.  It doesn’t matter what they make. Gear Bubble has 200,000 B2B merchants but no one seems to care. The true value of BRGO is clearly being masked by a credibility gap with respect to dilution.  E-commerce companies trade at rich multiples to sales but BRGO has yet to see that happen.  With respect to dilution the CEO said “dilution is expected to tremendously slow down as Bergio further increases revenue and profits from operations.” Are investors throwing a temper tantrum because he didn’t say he was going to stop or are they in the show me stage watching the O/S daily and when some unknown period of time passes they figured out he was serious about stopping it.  Perhaps the next catalyst will be a positive Q3 earnings report. The thing that is certain about the business is that it is clearly on the road to profitability by the end of the year. It has a fired up management team with a successful track record.  There are multiple cross selling strategies and they are vertically integrated from factory to end user.  BRGO is a pure E-commerce play with no overhanging brick and mortar retail baggage.  With so many different valuation metrics in play the most conservative is 1X sales which currently values BRGO at $.06. It’s massively undervalued and no matter which angle you view it. It’s truly a diamond in the rough.