The hot money continues to swirl around crypotocurrencies and in issuers with exposure to them. And while dramatic price fluctuations are expected to be the norm, Mackie Research Capital analyst Nikhil Thadani says there is a way to get exposure to the space without risking everything in the process.
Thadani says Mogo Finance Technology (TSX:MOGO) is a perfect vehicle for investors to gain exposure to the cryptocurrency space. The analyst says that while the Vancouver-based is advancing its blockchain offerings, it also has a backstop that cryto pure-plays don’t have.
This morning, Mogo announced the formation of a new subsidiary called Mogo Blockchain Technology that will see the company begin bitcoin mining via a partnership woth DMG Blockchain Solutions. Mogo will lease a thousand bitcoin mining machines. The efforts will support the company’s new MogoCrytpo, a product that enables Canadians to buy and sell bitcoin through their existing Mogo accounts.
“We strongly believe blockchain technology will have a profound impact on transforming financial services and will become a core part of a modern financial technology platform. Mogo is focused on building the best digital financial services experience for the next generation of Canadians, and we are committed to adding capabilities in blockchain through in-house development and strategic partnerships such as this one with DMG,” said Mogo president and CEO of Mogo Blockchain Greg Feller. “We’re excited to work with DMG given their extensive mining experience and attractive mining as a service model. We believe that gaining exposure to mining cryptocurrency such as bitcoin is an important part of building our competency around blockchain. In addition, this mining venture will enable us to generate our own supply of freshly minted bitcoin for our MogoMembers once we introduce MogoCrypto later this quarter.”
Thadani notes that Mogo has not been affected by the recent sector-wide downturn in crypto offerings, including bellwether Bitcoin.
“Early Crypto movers have benefited in recent months,” the analyst notes. “Last night, we learned that Bitcoin broker Coinbase booked US$1 bln in revenue last year Coinbase was only expected to do ~US$600 mln in yearly revenue as of Sept 30, but bitcoin’s run between Thanksgiving and Christmas boosted 2017 revenue to >US$1 bln. Coinbase’s valuation has likely at least doubled since its last valuation of US$1.6 bln in August. Multiple Canadian companies, which allow buying/selling crypto have been deluged by customer demand, according to industry reports and our discussions with management. Mogo offers a relatively less volatile means to benefit from crypto optionality. With large negative movements in cryptocurrencies in the new year, crypto related stocks have been negatively impacted as well. Mogo is up ~7% ytd, while Bitcoin is down ~25% ytd.”
In a research update to clients today, Thadani maintained his “Speculative Buy” rating and one-year price target of $12.00 on Mogo, implying a return of 77 per cent at the time of publication.
Thadani thinks Mogo will generate EBITDA of $2.1-million on revenue of $48.4-million in fiscal 2017. He expects those numbers will change to EBITDA of $1.2-million on a topline of $70.0-million the following year.
Disclosure: Mogo is a sponsor of Cantech Letter