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Fintech company Mogo is undervalued, says Eight Capital

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Eight Capital analyst Adhir Kadve provided an update to clients on Thursday on Canadian fintech name Mogo Inc (Mogo Inc Stock Quote, Charts, News, Analysts, Financials TSX:MOGO), saying there are a number of positives for the company stemming from a recent three-way merger in the cryptocurrency space.

Crypto-trading platforms WonderFi Technologies, Coinsquare and CoinSmart Financial announced on Monday the closing of a previously announced three-way merger. The deal will see WonderFi issue about 270 million shares to Coinsquare shareholders and about 119 million shares to CoinSmart shareholders, with WonderFi shareholders having as a result about 38 per cent of the combined company, Coinsquare shareholders having 43 per cent and CoinSmart shareholders having 19 per cent. 

Vancouver-based Mogo owned 34 per cent of Coinsquare and will now own a 14 per cent stake — the largest — in the publicly traded WonderFi Technologies.

“Mogo shareholders move forward with meaningful ownership in a public company with the only fully regulated crypto exchange, as well as scale and diversification that we believe positions them well to benefit from long-term growth trends in the industry and to build value for shareholders over time,” said Mogo President and CFO Greg Feller in a statement.

On the merger, Kadve opined that with the recent exit of several large international crypto exchanges like Binance from Canada due to regulatory requirements, the new WonderFi is likely to benefit from greater market share gains as users of other platforms look for new, trusted and reliable trading platforms.

Kadve added that it will give Mogo investors exposure to crypto via a regulated exchange, greater visibility into a key asset of Mogo’s which will thereby uncover the undervaluation of Mogo shares and it will give Mogo greater optionality to monetize its investment.

“Based on WonderFi’s market value and Mogo’s proportional ownership of 14 per cent, we ascertain that WonderFi is worth $0.30 per Mogo share, which implies a core Mogo value of $0.63/share,” Kadve wrote.

With the update, Kadve maintained a “Buy” rating on MOGO and 12-month target of $3.00, which at press time represented a projected return of 223 per cent. The analyst said Mogo is currently trading at 3.9x his 2024 EV/EBITDA estimate, which is a discount to its Consumer Fintech Peers.

“Given management’s track record of pivoting to profitability (recall that during the COVID-19 pandemic, Mogo was able to quickly pivot towards profitability, driving 26 per cent margins in F20) we see upside potential to Street/Eight Capital adj. EBITDA estimates of $1.5 million (ten per cent margin) and thus Mogo’s upcoming Q2/F23 results could be a potential positive catalyst for shares,” he said.

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