HIVE Blockchain stock is still not a buy, PI Financial says

With the contract disputes with strategic partner Genesis Mining now in the rearview mirror, HIVE Blockchain (HIVE Blockchain News, Stock Quote, Chart TSXV:HIVE) is back in business, according to PI Financial analyst David Kwan, who on Monday changed his rating for the stock from “Under Review” to “Neutral.”

Last week, crypto-miner HIVE announced that it had reached a settlement with Genesis, HIVE’s largest shareholder at 19 per cent, which had earlier this year called for the removal of non-Genesis board members amid contractual disputes between the two companies. With the new agreement —which came with the discontinuation of any legal proceedings between the two parties— came a board restructuring (two Genesis representatives have resigned as directors of HIVE, while Genesis will still have the power to nominate one director to HIVE’s board for a period of three years, provided that it continues to hold at least ten per cent of the company’s shares) management at the Iceland and Sweden GPU mining operations are to transition to HIVE or to a new third-party service provider while Genesis is to continue providing cloud-based ASIC mining capacity, effectively restarting HIVE’s operations in Sweden.

“I am exceptionally pleased that we have restarted our operations in Sweden as Ethereum continues to show renewed strength,” said Frank Holmes, Interim Executive Chairman and Interim CEO of HIVE, in a press release on July 11. “Rebooting the facility brings new life to the mining rigs and the transition team at Genesis has been exceptionally cooperative and efficient as the two companies have coordinated efforts to ensure a smooth reboot of the GPUs at the facility.”

Kwan is taking the news as a positive for the stock, saying that, in addition, power prices in Sweden have dropped by 70 per cent since the start of 2019, potentially having a material positive impact on HIVE’s gross mining margins.

“With better clarity on the path forward, we are changing our recommendation to “Neutral” and maintaining our Speculative risk rating. While the crypto mining market has materially improved in recent months, we note that there could be an overhang on the share price due to potential share sales by Genesis, uncertainty on who will operate HIVE’s GPU mining business and what the associated costs will be, and the broken partnership with Genesis (once a key differentiator),” writes Kwan in a client update.

Kwan has provided revenue estimates of $33.3 million for fiscal 2019 and $45.4 million for fiscal 2020 and adjusted EBITDA estimates of negative $2.0 million for fiscal 2019 and $9.4 million for fiscal 2020. His forecasts are based on an Ether price of $250 and a Bitcoin price of $11,000. (All figures in US dollars unless noted otherwise.)

Kwan’s rating comes with a target price of C$0.45 per share, which represented a projected 12-month return of zero per cent at the time of publication.