HIVE Blockchain Technologies Ltd

HIVE Blockchain Technologies Ltd (TSXV: HIVE) is in the business of providing infrastructure solutions in the blockchain industry, including the mining of digital currencies. Its projects include Iceland Cryptocurrency Mining Project.

Key highlights 

• Focus on expansion:The cash flow provided by the company's Ethereum mining operations is being used to expand its Ethereum mining equipment. We think this would help the company to scale up its newly acquired Bitcoin mining business in Canada.

• Upgrading Ethereum mining: The company is upgrading its GPU equipment to maintain its Ethereum mining industry footprint. It intended to complete this project by the end of 2020, however, the negative impact on the global supply chain related to the COVID-19 pandemic presented challenges including increased shipping costs and obtaining equipment from China on a timely basis. 

• Acquired green energy 50 MW data centre: Recently, the company acquired 50 MW data centre campus in New Brunswick from GPU.One Holding Inc. We believe this acquisition would expand the company’s footprint in Canada.

• Strong Industry Momentum: Blockchain's future prospects are bright, with global investment on the technology forecast to rise at a 60% compound annual growth rate (CAGR) to USD 15.9 billion in 2023. The Ethereum blockchain has seen strong traction, and the industry has been ranked first among crypto ventures in terms of user participation. Furthermore, Ethereum miners have seen a six-fold rise in sales so far this year, which is a key positive.

Source: Company Presentation

Financial overview of Q3 2020 (Expressed in US dollars) 

Source: Company

• In Q3 2020, the company posted higher income from digital currency mining which increased by 174% to USD 13.7 million, against USD 5.0 million in the previous corresponding period. The increase was primarily due to an increase in cryptocurrency prices.

• The company posted higher net income before and after tax for the period at USD 17.2 million, as compared to USD 3.3 million in Q3 2019. The quarter was marked by lower operating and maintenance costs and higher depreciation with a significant decline in total expenses.

• Higher revenue and minimized operating expenses helped the company in posting a net income USD 17.5 million, as compared to USD 3.5 million in pcp.

Risks associated with investment

The company’s operations are exposed to a significant amount of risk from global financial markets and price volatility within the digital currency space. Moreover, the company might witness volatility of network hash rates, which might impact the group’s costs of mining. 

Stock recommendation

Despite a fall in the amount of Ethereum coins mined this quarter due to lower transaction costs relative to the previous quarter, the group's Bitcoin activities doubled, assisting the firm in reporting record peaks in sales and cash flow. Regardless of the difficulties associated with and complexity levels, the high crypto currency prices, along with its continuing emphasis on reducing costs at its activities, produced significant performance. On the Valuation front, the stock is trading at a Trailing P/E of 34.9x as compared to Industry average of 42.5x. Hence, considering the aforementioned facts, we recommend a “Hold” rating at the closing price of CAD 3.55 on April 23, 2021.

1-Year Price Chart (as on April 23, 2021). Source: Refinitiv (Thomson Reuters)

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