Mogo Finance Technology has a 167 per cent upside, Mackie Research says

Look to see fee-based revenue pick up for Mogo Finance Technology Inc. (Mogo Finance Technology Stock Quote, Chart, News: TSX:MOGO), says analyst Nikhil Thadani with Mackie Research Capital Corporation, who sees significant upside to the Canadian fintech company.

Ahead of Mogo’s reporting on March 6 of its Q4/2017 results, Thadani expects revenue and gross margins estimates of ~$13.1 million and 68 per cent, respectively, with a Q4 EBITDA of ~$700,000 versus the consensus of ~$1 million.

The analyst says he is looking for commentary from the Q4 earnings call suggesting a pickup in 2018 fee-based revenue. “Our investment thesis on Mogo has been the evolution towards less capital intensive fee based revenue,” says the analyst in a note to clients on Monday. “We currently model less than 40 per cent of 2018 revenue from fee based products, which could be conservative. We would view an increase in this mix positively.”

On January 23, Mogo announced an agreement with Vancouver-based DMG Blockchain Solutions to lease 1,000 bitcoin mining machines. Mogo president Greg Feller said that the move will allow Mogo to produce its own supply of bitcoin.

“The biggest use cases and revenue-generating cases for blockchain are bitcoin mining, and buying and selling bitcoin. This will allow us to tap into both of those,” said Feller to the Financial Post. “It starts to give our investors exposure to not only buying and selling of cryptocurrency once we launch accounts, but also bitcoin mining, which we believe has very attractive economics.”

The company plans to launch its MogoCrypto product later this quarter, which will give Canadians the ability to buy and sell bitcoin through their MogoAccount.

Shares of Mogo are down 34 per cent since the January 23 announcement, which Thadani says is in line with the sell-off of other pre-revenue and pre-product blockchain-related stocks. The analyst says that any added revenue related to its bitcoin products would be an upside whose costs are likely already captured in his model. “Crypto related initiatives have provided unanticipated upside potential and catalysts,” says the analyst. “As such, with Mogo trading at ~1.6x net sales versus fintech names at slightly over 4.2x on a 2019 basis, the odds look favourable here.”

Thadani estimates revenue and EBITDA for Mogo in 2018 at $70.01 million and $1.17 million, respectively, and a revenue and EBITDA for 2019 of $92.96 million and $8.07 million, respectively.

Thadani today maintained his a “Speculative Buy” rating and a one-year target price of $12.00 on Mogo, representing a 167 per cent return on investment at time of publication.

Disclosure: Mogo is an annual sponsor of Cantech.