BIGG Digital has tons of upside, says PI Financial

PI Financial analyst Kris Thompson continues to think big about BIGG Digital Assets (BIGG Digital Assets Stock Quote, Chart, News, Analysts, Financials CSE:BIGG), reiterating a “Buy” rating and target price of $3.00/share in an update to clients on Wednesday.

Founded in 2017 and headquartered in Vancouver, BIGG owns, operates and invests in crypto businesses that support and enhance a compliant and regulated ecosystem, including Blockchain Intelligence Group, a developer of compliance, search and forensics security and accountability software, and Netcoins, an online cryptocurrency brokerage.

Thompson’s analysis comes after BIGG released its second quarter financial results, which Thompson noted to be negative in the short term on account of a weaker crypto trading sector.

“We are revising our model to reflect transaction volumes down 10 per cent in Q3 based on Coinbase disclosures reflecting continued weakness into July and a slight recovery since then,” Thompson said. “Recall April and May volumes were ballistic as Bitcoin breached US$65k. We grow volumes to achieve 2x Q2/21 levels by Q1/22 based on the assumption that the crypto rally continues, and Netcoins receives its license in September, then adds more coins & active users to its platform.”

BIGG reported revenue of $4.5 million in the quarter, with $4.2 million coming from Netcoins to mark a 24 per cent quarter-to-quarter increase compared to industry contemporary Coinbase, which grew 27 per cent quarter-to-quarter. BIGG’s numbers fell slightly short of the consensus projection of $4.8 million in revenue for the quarter, while also missing the PI projection of $5.6 million.

The company’s adjusted EBITDA also slightly broke even for the quarter, though the company’s $100,000 mark and two per cent margin came in short of the PI projection of $1.1 million and 21 per cent margin.

However, Thompson believes the company is in a good place to enter the US market and continue its growth, with approximately $71 million in cash and crypto assets available, as well as significant regulatory experience.

“Investors need to think past the quarterly volatility associated with crypto and view BIGG as one of the top 2-3 platforms in Canada once the regulatory landscape and sector consolidation shakes out. Then we can better judge the valuation, which is likely much higher than $3/share,” Thompson said.

Commenting on the quarter, BIGG CEO Mark Binns said in a press release, “We are very pleased with our Q2 results – which reflect excellent growth across both Netcoins and BIG. Each company grew revenue by 24 per cent QoQ or better, with margins remaining very strong. We also took advantage of the recent Bitcoin price degradation, adding to our holdings which now sit at 430.8 Bitcoin.”

“We have made minority investments in two solid businesses – Wionder.fi and, of late, Zen Ledger – that boast strong leadership and offer significant growth potential. Netcoins has launched its iOS and Android apps to great reviews and happy customers, making it even easier and faster to trade crypto. We continue to execute on our core business plans. In the second half of 2021 we look forward to continued growth, customer acquisition and product enhancements, as well as partnership expansions,” he said.

BIGG’s financial results prompted updates to PI’s financial metrics, with Thompson now projecting the company will reach $18.6 million in total revenue for 2021, down 31 per cent from the initial $27 million estimate, but still representing a near-sevenfold increase (644 per cent) on a year-over-year basis. Revised 2022 estimates also trend downward from PI’s point of view, as Thompson now projects $55.7 million in revenue for the year, a 23 per cent cut from the initial estimation of $72.5 million while still nearly tripling (199.4 per cent) on a year-over-year basis.

EBITDA projections narrowly remain positive for BIGG in 2021, with Thompson estimating EBITDA of $1.9 million (10 per cent margin) compared to his initial $8 million 29.7 (per cent margin) forecast, before a projected jump to $23.9 million (43 per cent margin) for 2022 compared to the initial mark of $36.6 million (50.4 per cent margin).

Thompson expects the company’s EV/Revenue multiple to drop precipitously over the next two years, moving from 95.3x in 2020 to an estimated 12.9x in 2021, then down to a forecasted 4.3x in 2022. A positive adjusted EBITDA projection for 2021 also means a positive EV/adjusted EBITDA multiple estimate from Thompson, with a projection of 128.7x for 2021 before dropping to 10x in 2022.

At press time, BIGG Digital Assets was trading at $1.20/share on the Canadian Securities Exchange, down eight cents from its previous close of $1.28/share. However, BIGG’s share price is still up 131 per cent for the year to date, reaching a high point of $4.72/share on April 13. At the time of publication, Thompson’s $3.00 target represented a projected one-year return of 132.6 per cent.