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Argo Blockchain - Initiation of Coverage

Unique play on cryptocurrency Mining as a Service (MaaS)

Argo Blockchain plc is a recently formed company which was established to develop a global datacentre management business facilitating cryptocurrency Mining as a Service (MaaS). The company listed on the Standard segment of the Official List of the London Stock Exchange on 3rd August 2018 in conjunction with a £25 million placing.

• Rise in blockchain technology and cryptocurrencies stimulates demand for a new industry

  Blockchain technology, which underlies cryptocurrencies such as Bitcoin and Ethereum, requires significant computing power to solve complex mathematical equations associated with the administration of transactions. This process (“mining”) is undertaken by members of the online community known as “miners” who are rewarded for their efforts with cryptocurrency. However, set up costs for crypto mining infrastructure can be prohibitive.

• MaaS democratises the mining process and lowers entry costs for the general public

  Mining as a Service (MaaS) offers consumers the chance to mine for cryptocurrencies without them having to spend the time and money required to set up and maintain crypto mining infrastructure. Instead of buying the equipment themselves users pay a fee to buy computing power, (also known as “hashing power”) from a MaaS provider which has acquired infrastructure at scale.

• Growing and global operational presence

  Argo’s operations will initially be located in Canada, China & Northern Europe, locations where electricity costs are low, supported by a UK Head Office. Argo intends to launch a number of “pay for what you use” mining plans within the coming months, initially focusing on four cryptocurrencies. Ranging in value from $49 to $599 per month, the recurring monthly plans offer more flexibility to users compared to current competitor offerings.

• Valuation suggests upside of 195%

  Working together with management we have put together a number of assumptions to highlight Argo’s potential over the next three years. Applying a multiple of 10 times forecast 2020 profits implies a valuation of £112 million or 38.12p per share. Weighted equally with our peer based valuation of 35.55p this results in our target price of 36.84p. With the shares currently trading at 12.5p we therefore initiate coverage of Argo Blockchain with a Conviction Buy stance.