Bitfarms Ltd. (TSX: BITF) is a global Bitcoin self-mining company that owns and operates blockchain farms that power the global decentralized financial economy. It provides computing power to cryptocurrency networks such as Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Dash.

Key Highlights:

• Mining production update: On May 2, 2022, the company released its production update stating it minted 405 new Bitcoin (BTC) in April 22, which is up by 75% from April 2021. The company started a ninth operating facility at the Legal farm, which has processing capacity of 3 exahash per second (EH/s) as compared to 2.7 EH/s as of March 31, 2022. During April 2022,  the average daily production capacity increased by 15%, to 13.5 BTC/day from 11.7 BTC/day from March 2022. The group holds 5,646 BTC in its inventory as of April 30, 2022, with a total value of USD 217 million (1 BTC = USD 38,500).

• Increased revenue: The group reported an increase in revenue to USD 40.32 million during Q1FY22 as compared to USD 28.43 million in Q1FY21. The majority of the increased revenue was from the USA region, which reported the total sales of USD 9.80 million in the Q1FY22 vs USD 0.30 million in Q1FY21. The total revenue from the Canadian region stood at USD 29.92 million in a similar period (Q1FY22) which is marginally higher than USD 28.13 million in Q1FY21.

• Higher adjusted EBITDA: During Q1FY22, the company witnessed approx. 64% increase in its adjusted EBITDA to USD 32.34 million against USD 19.70 million in Q1FY21. The adjusted EBITDA margin also saw a jump to 80% in Q1FY22 which is higher than the adjusted EBITDA margin of 69% in Q1FY21. Because of the increased net income, increased depreciation, and amortization expenses in Q1FY22, pushed the adjusted EBITDA higher.

• Improved outlook: The management is optimistic to increase the production capacity to 6.0 EH/s for the miners by the end of FY22. Though the company is evaluating further scope to enhance the production capacity by providing additional infrastructure to scale the production capacity to 8.0 EH/s by the end of FY22.

Risks associated with investment

The company is widely exposed to the prices of Bitcoins and other crypto assets, and any sustained decline in the prices will impact the company's holding negatively. Further, the group is facing other risks such as a cyber threat, constant upgrading of technology, changes in the law related to crypto-assets, etc. 

Financial overview of Q1FY22 (Expressed in thousands of USD)

Source: Company Filing 

• During Q1FY22, the group reported an increase of almost 42% in its revenues to USD 40.32 million as compared to USD 28.43 million in the Q1FY21. The increased production capacity and the improved hashrate helped the company to clock higher revenues.
• The gross profit declined in Q1FY22 to USD 17.03 million against the gross profit of USD 19.31 million in Q1FY21. On account of the increase in the cost of sales, which rose to USD 23.29 million in Q1FY22 as compared to USD 9.12 million in Q1FY21, the group reported lower gross profits.
• For Q1FY22, the company reported a lower operating income of USD 6.87 million against USD 16.49 million in Q1FY21. The increases in selling and administrative expenses during Q1FY22 resulted in lower operating income.
• The group posted net income of USD 4.51 million during Q1FY22 as compared to the net loss of USD 7.60 million in Q1FY21.

Valuation Methodology (Illustrative): Price to Earnings based

Analysis by Kalkine Group

Stock Recommendation:

The group reported an increase in its adjusted EBITDA of USD 32.34 million during Q1FY22 against USD 19.70 million in Q1FY21, along with the increase in average daily production capacity to 13.5 BTC/day in April 2022, from the average daily production capacity of 11.7 BTC/day in March 2021. The stellar net revenue numbers along with the increased sales from the USA segment, and the optimistic outlook provided by the company management, present a strong future for the coming in coming quarters. On the valuation front, the stock is measured on the Price to Earnings based multiple and we have considered Hut 8 Mining Corp., Mitek Systems Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the last closing price of CAD 2.45 on May 16, 2022. Additionally, the 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 of May 16, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV

Technical Analysis Summary

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