GLXY stock is undervalued, ATB Capital says

Looking for equities exposure to crypto? ATB Capital analyst Martin Toner has an idea for you.

On December 15, Toner initiated coverage of Galaxy Digital (Galaxy Digital Stock Quote, Chart, News, Analysts, Financials TSX:GLXY) with an “Outperform” rating and price target of $13.00, implying a return of 36.8 per cent at the time of publication.

The analyst laid out his investment thesis on the stock.

“As momentum returns to the price of BTC, investors are turning their attention to levered equity plays on cryptocurrencies. After a quiet 2023, investors are starting to recognize GLXY’s leverage to improving digital asset markets. In Q3/23, GLXY had book value of US$1.5bn, $472mm in BTC, and $227mm in ETH. The increase in the value of GLXY’s balance sheet is just one way that GLXY benefits from price appreciation in digital assets. Fees on AUM, client-facing trading, investment banking advisory, and venture investments all benefit to different degrees and on different timetables. The capital markets and asset management businesses require modest amounts of capital and possess significant operating leverage. Longer term, we believe the institutionalization of the digital asset space will accelerate with price appreciation for BTC and other digital assets. Many believe increased institutional participation in the space will drive demand and prices. Being constructive on the price of BTC is a de-facto requirement for an investment in GLXY Digital. We forecast the price of BTC out to the end of 2025 by looking at qualitative factors like growing demand as well as quantitative factors such as the hashrate, publicly traded BTC miners’ growth plans, and the implications of the upcoming halving, although we acknowledge the limitations of doing so. We believe after two years since BTC peaked and a year since it bottomed, there are a number of tailwinds that suggest a new cycle has begun.”

Toner thinks GLXY will post Net Income of $536-million on Operating Revenue of $151-million in fiscal 2023. In 2024, the analyst thinks the company will deliver Net Income of $118-million on Operating Revenue of $279-million.

The analyst says he thinks crypto has tailwinds.

“We believe the next up-cycle for digital assets has begun,” Toner argued. “The recent doubling in GLXY’s shares have increased the valuation to 1.6x trailing price/book value (P/BV). We estimate that mark-to-market current P/BV is 1.1x, which we believe undervalues the opportunity in GLXY’s shares. We believe GLXY will show leverage to the price of digital assets and book value will grow with digital asset price appreciation. At the peak of the last bull run for digital assets, GLXY traded at ~40x trailing P/BV, and ~10x P/NTM BV.”