Argo Blockchain - Valuation model update
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Strategic shift further vindicated by recent updates
Argo’s results for the six months to June 2019 showed revenues growing by 283% to £2.93 million as the company turned to mining cryptocurrencies for its own book and as the Bitcoin price rose strongly over the period. This helped the company to post a maiden pre-tax profit of £0.95 million. The third quarter (to end-September) saw revenues of £3.63 million generated from cryptocurrency mining operations, up 75% from Q2 2019, with mining margins for the period of c.73%..
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Further investment in hardware made to accelerate growth
An existing order for 5,000 Antminer S17 machines costing $13.09 million has been replaced by an order for 10,000 Antminer T17s costing $9.51 million. This decision has been made as the amended order is significantly superior in terms of total mining efficiency and enables the Argo to grow further its overall mining capacity. Argo expects the amended order will be delivered in batches from early December this year and will increase the size of the mining estate to 17,000 machines or 640 PH by the end of Q1 2020, increasing total mining capacity by 240%.
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Shares look cheap on a range of valuation metrics
With a current market cap of less than £18 million Argo trades at a discount of 20% to net assets of £22.38 million as at 30th June 2019. On a price/earnings basis the shares currently trade on a multiple of just over 3 times our 2020 forecasts. Taking into account Argo’s growth profile and efficient operations, we remain of the belief that a multiple of 8 times earnings & cash & crypto assets would be a reasonable value to place on the shares. On our 2020 forecasts for c.1.83p of earnings, that equates to a value of 23.33p per share, implying 286% upside. Conviction Buy.
Argo Blockchain PLC. Argo Blockchain PLC is a United Kingdom-based company that provides cryptocurrency mining services. The Company's mining platform enables customers to mine Ethereum and other altcoins from their own computer or mobile device. It provides a cloud-based platform, Mining as a Service (MaaS). Its MaaS platform enables users to onboard, access and manages the blockchain mining rigs and carries out cryptocurrency mining.
Align Research is a commissioned research company founded in November 2015 in order to provide the under-served smaller company space with high quality analysis. We have an initial focus on the natural resources sector, in which we see significant opportunities given the current once in a generation bear market, however all undervalued small caps (sub £100m) are considered by our team. Align was founded by industry professionals with decades of experience in the stock markets, headed up by highly qualified individuals from both fund management and analytical backgrounds.
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