Bitfarms Ltd (TSXV: BITF) is a global Bitcoin self-mining company, running vertically integrated mining operations with onsite technical repair, proprietary data analytics and company-owned electrical engineering and installation services to deliver high operational performance and uptime.

Key Updates:

• Expansion Plans: The Company believes that its existing orders of miners and contracted infrastructure expansion have the potential to produce ~7.2 EH/s by the end of FY22 from 2.24 EH/s in December 2021. The group is looking for upcoming opportunities, including additions and alternatives to its currently contracted infrastructure expansion and is planning to operate from two warehouse facilities in Rio Cuarto, Argentina. These are expected to offer tremendous value proposition the coming days.

• Robust margin profile: The company reported strong profitability margins aided by improved operational efficiencies, which is commendable. In FY21, the group reported an EBITDA margin of 54.5%, significantly higher than the industry median of 7%. Moreover, the company’s operating margin and net margin stood at 37% and 13.1%, respectively, as compared to the negative industry median of 2.1% and 5%, respectively.
  

• Production commenced at Bunker: The company reported its first production from The Bunker facility, located in Sherbrooke, Québec. This is having a capacity of 12 megawatts (MW) and is operating at 300 petahash. As per the management, the Bunker along with its nearby Leger location, will support the company’s goal of achieving 3 EH/s in early Q2FY22.
  

Risks associated with the Investment:

Decline in Global demand for bitcoin might adversely impact the company’s overall performance and remains a key concern for the group. 

  FY21 Financial Highlights:

FY21 Income Statement Highlights (Source: Company Report)

• In FY21, the company reported its total revenue of USD 169.4 million, surged from USD 34.7 million in FY20. Revenues increased mostly due to the increase in average Bitcoin price and the increase in Bitfarms’ hashrate coupled with the decrease in network difficulty.
• The period was marked by a higher cost of sales, increase in general and administrative expenses and inclusion of loss on revaluation of digital assets. Operating income was recorded at USD 63.6 million, as compared to a loss of USD 6.7 million, supported by higher income, partially offset by higher input costs as mentioned above.
• The company reported a net income of USD 22.1 million, as compared to a net loss of USD 16.2 million in pcp. This was primarily due to a higher operating income, partially offset by higher net financial expense coupled with a higher income tax expense.

Valuation Methodology (Illustrative): Price to Earnings Based

Analysis By Kaline Group

 Stock Recommendation:

In FY21, the company reported tremendous growth in its performance, supported by solid demand for bitcoin mining across the globe. After the acquisition of Mining facility in Washington state, the company has increased its mining hashrate to 2.24 EH/s in FY21 from 0.97 EH/s in FY20, which is encouraging

We have valued the stock using the P/E based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like HIVE Blockchain Technologies Ltd, Riot Blockchain Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the last closing price of CAD 4.71 on March 31, 2022.

One-Year Technical Price Chart (as on March 31, 2022). Analysis by Kalkine Group

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