Bitfarms Ltd (TSX: BITF) 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, earning fees from each network for securing and processing transactions. The company's operating segment includes Backbone and Volta. It generates maximum revenue from the Backbone segment.

Key Highlights

• Expansion Plans: The Company anticipates that current miner orders and contractual infrastructure development have the potential to increase production to 7.2 EH/s by the end of FY22, up from 2.2 EH/s in December 2021. The company is seeking for new options, such as additions and alternatives to its existing contracted infrastructure development and intends to operate from two warehouse sites in Rio Cuarto, Argentina. These are likely to provide an incredible value proposition in the coming days.

• Production commenced at Bunker: The Bunker plant in Sherbrooke, Québec, was the site of the company's inaugural manufacturing. This has a capacity of 12 megawatts (MW) and runs at 300 petahash. According to management, the Bunker, coupled with its neighbouring Leger site, will help the firm achieve its objective of 3 EH/s in early Q2FY22.
  

• Mining operations and production update: The company has acquired an additional land, known as Garlock, in the City of Sherbrooke, to create an 18 MW plant to replace the current de la Pointe facility, which is planned to be decommissioned in February 2023. The first 16 MW of capacity at this plant is nearing construction. When fully operating, Leger will employ over 4,000 additional miners and add over 400 PH/s to Bitfarms' online hashrate. Furthermore, in March 2021, the corporation mined 363 additional BTC, a 64% increase from March 2021, and currently has a total of 5,243 BTC.

      Source: Company Filing

• Industry beating margins: The resilient business, management’s solid determination along prudent steps and higher average Bitcoin price helped in leaping the industry median margins on many fronts in FY 2021. Furthermore, the company is keeping its pace and tempo of higher margins on the sequential basis, which is a key positive. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

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

Financial overview of FY 2021

Source: Company Filing

• 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): EV to Sales Based

*1USD=1.26CAD

Analysis by Kalkine Group 

Stock recommendation

FY 2021 was a year of outstanding growth for the corporation, with revenue gains of 426% and 388%, respectively, in the fourth quarter and full-year 2021, compared to the same periods in 2020. The firm pushed growth by raising its hashrate by 131% in 2021, and it also believes that it increased its market share from 0.6% of the BTC network to 1.2% from year-end 2020 to year-end 2021, which is a significant increase.

Furthermore, the business is better positioned than ever in 2022 to grow its worldwide operations and continue to spend aggressively to acquire market share in a cost-effective manner. Furthermore, by adding 400 petahash per second to its hashrate in March, it is swiftly nearing the target of 3 exahash per second (EH/s), which it aims to achieve soon.

Hence considering the aforesaid facts, we recommend a “Speculative Buy” rating at the last closing price of CAD 3.99 as on April 20, 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 on April 20, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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