HIVE Blockchain is still a buy, PI Financial says

HIVE Blockchain Technologies (HIVE Blockchain Stock Quote, Chart: TSXV:HIVE) has been hit hard by the downturn in cryptocurrency prices which has cut into its revenues over the last quarter.

But David Kwan of PI Financial remains bullish on the company, pointing out that even in the depressed environment HIVE has been able to produce positive gross margins on its crypto mining.

HIVE, which owns GPU- and ASIC-based mining facilities in Iceland and Sweden, generated revenue of $6.5 million for the quarter ended September 30, its fiscal Q2 2019, representing a 39 per cent drop from the previous quarter. The company’s Adjusted EBITDA for its Q2 was negative $0.8 million. (All figures in US dollars unless noted otherwise.)

Kwan calls the impact of the quarterly results a modest negative, saying that revenue and Adjusted EBITDA were below his $7.7 million and $1.5 million respective estimates. Its gross mining margin was down to 28.6 per cent from last quarter’s 60.4 per cent and below Kwan’s own estimate of 35.4 per cent.

“Operating and maintenance costs came in modestly below our forecast but not enough to offset the lower than expected revenue. Despite the ongoing weakness in cryptocurrency prices, HIVE is still able to generate positive gross mining margins,” says Kwan in an earnings update to clients on Friday.

Kwan points out that the company’s balance sheet remains strong, with $12.5 million in cash at the end of Q2 compared to $15.9 million at the end of the previous quarter.

The analyst has lowered his estimates, now calling for revenue of $33.8 million (was $39.4 million) in fiscal 2019 and $39.6 million (was $53.3 million) in fiscal 2020. On Adj. EBITDA, he now predicts $4.5 million (was $6.3 million) for fiscal 2019 and $6.6 million (was $13.8 million) in fiscal 2020.

Kwan is maintaining his “Buy” recommendation and “Speculative” risk rating with the reduced target price of C$0.40 (was C$0.70), representing a projected return of 29 per cent at the time of publication.