Hut 8 Mining Corp. (TSX: HUT) is one of the leading bitcoin miners in the world. The group has one of the highest installed capacity rates within the industry and is also a self-mined Bitcoin of any crypto miner or publicly traded company. 

Key Updates:

• Acquisition Update: On January 20, 2022, the group informed that it has acquired the cloud and colocation data center business from TeraGo Inc. This data center business provides comprehensive information technology, which includes a wide range of scalable cloud services. This acquisition would diversify the company’s offerings by establishing a broad high-performance computing platform with recurring revenues and a stable cash flow.

• Strong Profitability margins: The company enjoys a strong margin profile, as compared to the industry median. Notably, EBITDA margin and operating margin stood at 46.6% and 36.3%, respectively, significantly higher than the industry median of 7.9% and negative industry median of 0.4%, respectively. Pretax margin stood strong at 35.2% as compared to the negative industry median of -5.10%.

• Technical showing a potential up move: The stock of HUT is trading near the lower band of its 20-days Bollinger band, which indicates a potential price appreciation from the current level. Moreover, the stock’s RSI is trading near the oversold zone of 35.60, which further suggests an expected-up move in the coming trading session.

Risks: The company witnessed a surge in input costs such as higher cost of sales and significantly higher general & administrative expenses. Continuation of the above trend is likely to impact the company’s cash flows and profitability. 

 Q3FY21 Financial Highlights:

Q3FY21 Income Statement Highlights (Source: Company Report)

• HUT impresses with its quarterly result, wherein the company posted revenue of CAD 50.3 million, jumped from CAD 5.7 million in Q3FY20. The exuberant growth was aided by strong self-mining economics, continued expansion of the mining capacity, operational up-time coupled with growth from hosting services.
• Gross profit stood at CAD 29.1 million, as compared to a loss of CAD 5.3 million in pcp, thanks to the elevated revenue, partially offset by higher cost of revenue (CAD 21.2 million v/s CAD 11.0 million in pcp).
• The quarter witnessed a surge in General and administrative expenses at CAD 10.8 million v/s CAD 1.2 million in pcp. Operating income stood at CAD 18.2 million v/s an operating loss of CAD 0.8 million in pcp, supported by higher gross profit.
• The group reported a net income of CAD 17.69 million, as compared to a loss of CAD 0.9 million in pcp.
  

Valuation Methodology (Illustrative): Price to Earnings-based

Analysis by Kalkine Group

Stock Recommendation:

Despite historical price volatility, the Management still believes that Bitcoin represents a digital storage of value and the future of global digital money. Hence, we expect the demand for Bitcoin as a digital store of value and international payment settlement system is likely to remain strong in the coming days.

We have valued the stock using the P/E based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like HIVE Blockchain Technologies Ltd, Bitfarms Ltd and CoreCard Corp for the purpose. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of CAD 7.52 on January 31, 2022.

One-Year Technical Price Chart (as on January 31, 2022). Source: REFINITIV, Analysis by Kalkine Group 

 Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest. 

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest. 

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

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