HIVE Blockchain’s strong balance sheet could help drive growth, PI says

Its Q4 results fell below his expectations, but PI Financial analyst David Kwan still thinks there is money to be made on HIVE Blockchain (TSXV:HIVE).

On Tuesday, HIVE reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted Adjusted EBITDA of $5.0-million on revenue of $9.6-million, numbers that missed Kwan’s expectation of EBITDA of $6.9-million on a topline of $10.3-million.

“It has been a transformational year for the company as we have grown from a 2.0-megawatt facility in Iceland to a company with more than 24 MW of operations to date and digital currency mining assets in three countries,” CEO Harry Pokrandt said. “Despite volatility in the cryptocurrency market, we have significantly grown our inventory of newly minted coins and have a strong cash position. I am extremely pleased with the operational and financial performance of Hive and our position as a leading blockchain infrastructure company.”

With the stock flagging for much of 2018, Kwan says using it as a currency is currently not in the cards, leaving HIVE with some challenges with regards to its initiatives in Norway.

“Funding remains a/the key issue for the expansion in Norway,” he says. “Management is not looking to raise equity capital at these levels, as they are wary of significant shareholder dilution. Instead, they are looking at other options including a staged build out using internally generated cash as well as joint ventures/partnerships. HIVE would also look at expanding beyond cryptocurrency mining in Norway, as it could provide co location and/or hosting services, preferably to non-cryptocurrency mining companies.

But Kwan says the prospects for Sweden are better.

“We are expecting strong organic growth ahead, driven by the expansion in Sweden, including their 20MW ASIC/Bitcoin facility that is set to come on-line at the end of September while the balance sheet remains strong and should continue to strengthen, which could help HIVE fund a potential buildout in Norway (Kolos provides some optionality in our view),” the analyst adds.

In a research update to clients Tuesday, Kwan maintained his “Buy” rating and one-year price target of $1.30 on HIVE Blockchain, implying a return of 31.3 per cent at the time of publication.

Kwan thinks HIVE will generate Adjusted EBITDA of $20.9-million on revenue of $53.0-million in fiscal 2019. In 2020, he expects EBITDA of $20.0-million on a topline of $60.6-million.