Galaxy Digital (TSX: GLXY) is a technology-driven financial services and investment management firm that provides institutions and direct clients with a full suite of financial solutions spanning the digital assets ecosystem. Moreover, it operates in the following businesses: Trading, Asset Management, Principal Investments, Investment Banking, and Mining.

Key highlights

• Focused on Expansion strategy: The management is focusing on launching new Asset Management funds and scaling its proprietary bitcoin mining, which would further serve as a key advisor to ecosystem players. With this, the company is highly poised to take advantage of the growing demand within the crypto segment. Moreover, the company is also focusing to invest in technology and product acquisitions to offer innovative products to its clients, which is impressive.
  

• Growing Demand within Crypto currency segment: In the last few years, we have seen phenomenal growth in crypto users across the globe. The group provides spot, derivative and financing liquidity to clients, counterparties and venues that transact in cryptocurrencies and other digital assets. The company offers more than 800 unique counterparties and acts as an institutional-grade liquidity provider with market expertise and global access to over 100 different cryptocurrencies. Hence, with a wide array of crypto currency products, the company is well placed to cater to the growing demand within this segment.
  

• Sufficient Liquidity: Despite the ongoing volatility in the cryptocurrency space, the company reported its liquidity position of ~USD 1.6 billion, including USD 800 million in cash and more than USD 800 million in net digital assets, with most net digital assets in non-algorithmic stable coins. This is expected to support the company’s upcoming working capital requirements and capital expenditures.
  

Risk Associated with the investment:

The company’s operation is directly correlated to the movement of the cryptocurrency, capital market and other speculative asset classes. Hence a volatility within these asset classes might dampen the company’s performance. 

 Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• GLXY announced Q1FY22 result, wherein the company posted its total income of USD 543.5 million, slide from USD 849.7 million in pcp. The decline was primarily attributable to lower Net realized gain on digital assets amounting USD 354.9 million v/s USD 730.7 million in pcp.
• The period was marked by lower input costs due to significantly lower Compensation and compensation related costs, partially offset by a lower General and administrative expense and a higher Equity based compensation. Total operating expense stood higher at USD 110.9 million v/s USD 130.2 million in pcp.
• GLXY reported a higher net unrealized loss on digital assets and investments in Q1FY22 versus a gain in pcp. This remained as drag and eroded the bottom-line. Hence, net loss for the period stood at USD 111.2 million v/s a net profit of USD 857.9 million in pcp.
  

 Valuation Methodology (Illustrative): EV to Sales Based

Analysis by Kalkine Group

Stock Recommendation:

The company offers Full Suite of Products required for Acting in and Holding Digital Assets, which includes Asset Management, Trading, Investment Banking, Principal Investments, and Mining. This looks promising considering the growing global demand for digital currency. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have industry (Financials) median on an NTM basis. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of GLXY at the last closing price of CAD 6.90 on May 27, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on May 27, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note: The reference data in this report has been partly sourced from REFINITIV

 Technical Analysis Summary

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