Take a pass on HIVE Blockchain, this fund manager says

Blockchain and cryptocurrencies may be the next big thing, but a company like HIVE Blockchain Technologies (HIVE Blockchain Stock Quote, Chart, News; TSXV:HIVE) needs to show that it can be a sustainable business going forward, says Bruce Campbell, president and portfolio manager at StoneCastle Investment Management, who says he’d be reluctant to throw even mad money on the stock.

On Wednesday, HIVE released its results for the third quarter ended December 31, 2017, with the company posting revenue of $3.274 million (all figures in USD unless otherwise noted) and a net income of $149,724 for the period. The company is hugely cashed up after big financing rounds over the past half-year, which management says they will put towards more expansion of their currency mining operations (the company currently runs facilities in Iceland and Sweden).

“In the third quarter of Fiscal 2018, we made significant progress in our expansion plans,” said CEO Harry Pokrandt in a press release. “The Company’s second acquisition in Iceland commenced operations, contributing to rising mining revenues and margins, and a transformational 2018 build-out schedule was finalized and fully financed, which will see a more than ten-fold increase in energy consumption dedicated to mining activities compared to that which was operational at quarter-end. We continue to evaluate future mining sites in stable jurisdictions with access to reliable, clean and inexpensive power.”

But that kind of expansion needs to be paired with a strong business plan, says Campbell. “We’ve looked at [HIVE]. When they were raising money they were doing it several times at big discounts to where the market price was,” says Campbell in conversation with BNN. “Anytime you see that, sometimes it can be tempting, but you have to look at the underlying business.”

“I know that there’s a lot of interest and speculation on cryptocurrencies and where things are going,” says Campbell. “It’s a business that we don’t really understand very well. We tried to get our heads wrapped around how the long-term economics are going to work, and as a result, we’ve sort of shied away from it.”

The downturn in prices for cryptocurrencies like bitcoin and ether over the past three months has had its effect on HIVE’s share price, which is currently in the $1.85 (CDN) range, after reaching a high of $5.37 in November. The stock turned heads on its debut on the TSX Venture last September when it closed its first day of trading up 220 per cent.

“Obviously, if the cryptocurrency prices go back up …then something like HIVE will continue to do well, but we worry [whether] they’re going to be long-term, sustainable miners,” says Campbell. “They would need to come up with a business plan that’s going to take them in a different direction. There’s lots of that on the blockchain, it’s just a function of how they take their company in that direction,” he says.

Asked whether he’d consider putting speculative or mad money on HIVE, Campbell was circumspect, saying that he’d put it on a short trigger.

“I would have a really tight stop on my stock,” he says. “I would definitely want to have that stop in place just to protect your capital on the downside.”