HIVE: 397% Growth at 6x Earnings » HIVE Digital Technologies Ltd.

Nasdaq: HIVE | TSX.V: HIVE

By: Adam Sharp
Editor, The HIVE Newsletter

Over the past year HIVE has put up some noteworthy financial numbers:

Quarterly revenue growth: 397% (YoY)
Return on assets: 37% (ttm)
Return on equity: 62% (ttm)
2,374 Bitcoin HODL reserves

HIVE shares currently trade at $2.25 on the Nasdaq. That gives the company a P/E ratio of approximately 5.8 (as of 5/28/2022, Yahoo Finance).

A case can be made that HIVE shares are attractively priced at these levels. So in today’s newsletter, we’re going to dig into HIVE’s valuation and strategy.

Let’s start by examining new investment bank coverage of HIVE.

Wall St. Notices HIVE

Investment banks and Wall Street analysts are finally starting to notice HIVE. Stifel GMP recently initiated coverage on HIVE and we believe the analysis is worth reviewing.

Here are some of the highlights from the Stifel report by analysts Suthan Sukumar and Daniel Tran, CFA.

Speculative buy rating with $3.75 price target
“We view HIVE as a leader in the industrial-scale cryptocurrency mining space”
“Unique combination of established scale, next generation hardware, and low-cost, 100% renewable power”
“…building on its ethereum mining roots with a rapidly expanding bitcoin mining footprint through strategic expansions, which is driving an outlook for strong revenue growth and profitability”
“Healthy balance sheet from recent capital raises, we see potential for the company to continue to scale aggressively yet responsibly as it prioritizes its peer-leading operational efficiency.”

Here are two screenshots from the report.

Stifel notes that in 2021 HIVE delivered a “peer-leading gross mining margin profile in the 75% range”.

And Cantor Fitzgerald recently highlighted HIVE’s cash flow as highest among crypto miners, as of Dec 2021.

H.C. Wainwright was one of the original investment banks to cover miners. Senior Analyst Kevin Dede has a buy rating on HIVE shares with a $5 target.

Of course, we can’t forget the independent analysts who led the way on crypto stocks. One of the emerging experts is Anthony Power, a former military accountant in the UK .

Anthony regularly posts some of the best crypto mining analysis in the world on Twitter, for free.

And HIVE stacks up well against the competition, as you can see in Anthony’s latest table from March 10 2022. Note the innovative use of metrics such as HODL/market cap, which shows the percentage of a miner’s market cap that is covered by crypto holdings.

Another independent analyst, Matt Kacur, built his own quant model which says HIVE shares’ intrinsic value may be higher than $13.

In previous newsletter How HIVE Stacks Up we mentioned Blonity, who runs a widely followed YouTube and Patreon channels that cover crypto mining stocks. He also provides excellent analysis of HIVE and other miners, and we are fortunate to count him as a shareholder.

The Ethereum Angle

While HIVE has been focused on building out our Bitcoin operations in a big way, we haven’t forgotten about Ethereum.

For many years ETH was our primary business. And it still accounts for a decent chunk of our revenue (approximately 1/3rd).

Most other miners have ignored ETH for the past 4 years, because it was always supposedly on the verge of switching to proof-of-stake (PoS).

HIVE leadership correctly predicted that there was still plenty of time left to mine ETH. We went big into ETH when few other miners did, and the company continues to benefit from those investments.

Today we gross $.70 cents a kw/h in revenue mining ETH, with an all-in-cost of $.05 a kw/h, says Frank Holmes, HIVE Executive Chairman.

Hardware payback times are incredibly short when mining is this profitable. We will continue to squeeze profit out of ETH until it’s no longer an option. And if history is any guide, we suspect further delays in implementing Ethereum’s PoS system are likely.

HIVE invested heavily in the Ethereum network over the last 5 years, and it has already paid off. That cash flow allowed us to:

Raise and invest $250M+
Buy and expand the New Brunswick BTC mining campus
Buy and upgrade the Lachute BTC mining campus
Ramp up ETH mining in Europe
Buy top mining equipment
HODL our BTC since Jan 1 2021

ETH trading over $3,000 gives a substantial boost to our crypto mining revenue, and margins. We will HODL a significant portion of ETH, but may sell some if we think the price is right, and if that capital can be invested more efficiently elsewhere.

Read more about Ethereum this in Profiting From ETH2 Delays.

Data Centers: Appreciating Assets

We’re glad that investment banks are starting to notice HIVE’s long-term performance and growth.

Over the past 5 years we have invested hundreds of millions of dollars into data centers and mining equipment.

The fruits of these investments are beginning to show. For example, on November 23 2020, HIVE announced an agreement to purchase GPU One, a leading Canadian Bitcoin miner. At the time, the price of Bitcoin was around $19,000.

In that transaction, HIVE acquired a large Bitcoin mining data campus for approximately $350,000 per MW. We estimate the current market price of comparable data centers today to be $2,000,000 per MW.

The value of data centers is rising for a few different reasons. Number one, in the summer of 2021, China banned Bitcoin mining. Before the ban, China made up around 50% of all Bitcoin hashing power. This led to a monumental shift in mining from East to West.

Data center demand was already exploding before China’s ban, which only fueled the fire.

The GPU One purchase also allowed HIVE to incorporate invaluable technical team members into the company. And despite all the growth, HIVE runs a lean operation with only 20 full-time employees.

HIVE believes these data centers will be key long-term assets that help differentiate us from the competition. Many of our peers chose the quicker route, which is to lease space in someone else’s data center. We chose a different path.

Since we purchased the New Brunswick property, new construction has been a constant. We’ve put up new buildings and added more than $100 million worth of new, top-notch Bitcoin miners at this location alone. Every month we receive and install thousands of new high-efficiency ASIC BTC machines.

Here’s a picture from late last year:

Flash-forward to March of 2022, and you can see the new buildings are coming along nicely.

Our cutting-edge facilities are located in areas that are ideal for mining crypto.

For example, the New Brunswick campus is cool year-round, eliminating the need for costly AC units. Nearby hydroelectric and geothermal power plants provide reliable, plentiful, and cheap energy.

In Sweden and Iceland, where our ETH mining operations are located, the climate is also cool, and the local power supply is largely hydroelectric and geothermal. HIVE has managed to avoid settling for either clean or cheap power. We got both.

As of 3/21/2022 HIVE produces about $650,000 worth of cryptocurrency per day, putting the company on a $237 million revenue run rate.

In February we produced 244.4 BTC, and ETH equivalent to another 132.6 BTC.

In early March we announced a groundbreaking deal with Intel Corporation (Nasdaq: INTC) to purchase 100MW worth of their new, cutting-edge Bitcoin chips. See the full story in our press release dated March 7 2022.

HIVE Is Building

HIVE has shown that it is possible to mine crypto at industrial scale with a minimal environmental footprint. We are a long-term oriented company, built to be durable and sustainable in every way.

HIVE’s leadership has deep capital markets experience which may be necessary to navigate any future financial turmoil. We have the land, resources, and talent to become a world-leading crypto miner. We will continue to make strategic investments as the industry grows and evolves.

HIVE was the first crypto miner to go public in 2017, and it plans to continue leading the industry during this critical time. We believe the importance of apolitical currencies such as Bitcoin is about to become abundantly clear for all to see.

Sincerely,

Adam Sharp
Editor, The HIVE Newsletter

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