Saying there are key headwinds and uncertainties ahead, PI Financial analyst David Kwan is staying on the sidelines as far as HIVE Blockchain Technologies (HIVE Blockchain Technologies Stock Quote, Chart TSXV:HIVE) goes.
In a research update Wednesday, Kwan reduced his rating from “Buy” to “Neutral” while maintaining his C$0.40 target, which represented a projected return of negative 16.7 per cent at the time of publication.
On March 1, Vancouver-based cryptocurrency miner HIVE Blockchain released its third quarter fiscal 2019 financials, coming in with revenue of $8.4 million, a 30 per cent quarter-over-quarter increase and 158 per cent year-over-year increase, while the company’s Adj. EBITDA was a loss of $4.1 million. (All figures in US dollars unless noted otherwise.)
Kwan chalks up the EBITDA loss (which came in below his negative $0.2 million estimate) to higher than expected operating and maintenance costs, G&A and foreign exchange expenses, along with a $16-million impairment charge related to the write down of the value of HIVE’s mining rigs.
The analyst says conditions in the cryptocurrency industry remain rough and rates HIVE’s quarter as having a “modestly negative” impact.
“HIVE, like other cryptominers, is facing tough times due to the plunge in crypto prices and network hash rates and difficulty that has not declined enough to help generate positive mining margins. Things could get tougher, given the reduced block mining rewards from three Ether to two (a significant reduction in network hash rates/difficulty is helping offset the lower reward),” says Kwan.
Kwan reports that the company’s cash stood at $6.3 million at the end of Q3, compared to $12.5 million last quarter. He notes that the Norwegian government decided late last year to remove the tax relief on power consumption for cryptominers, a move which has dealt a blow to HIVE’s plans for its Kolos asset. More bad news, Kwan states that a surge in power prices in Sweden could eventually result in either higher operating costs for HIVE or force the company to move its rigs to a lower cost jurisdiction.
The analyst has revised his estimates, calling for fiscal 2019 revenue of $33.6 million (was $33.8 million) and Adjusted EBITDA of negative $1.7 million (was $4.5 million). For fiscal 2020, Kwan is calling for revenue of $39.6 million (unchanged) and Adjusted EBITDA of $0.1 million (was $6.6 million).