ATB launches coverage of Bitfarms

The math makes sense for Bitfarms (Bitfarms Stock Quote, Chart, News, Analysts, Financials TSX:BITF), says ATB Capital analyst Martin Toner.

In a research report to clients March 31, Toner launched coverage of BITF with an “Outperform” rating and one-year target price of $6.50, implying a return of 115.9% at the time of publication.

The analyst says some investors may be looking at the company the wrong way.

“We believe BITF gets penalized for its international assets, given how unfamiliar investors are with those geographies and the perceived instability of Argentina,” he wrote. “There is likely more opportunity to develop low-cost mining assets outside of North America, and we like BITF’s first mover advantage in both Paraguay and Argentina. Given the below average valuation, we believe strong execution in these regions will release significant value creation for shareholders. We appreciate that political risk requires more expected return but at 1.8x 2025 EV/EBITDA, we believe BITF is significantly undervalued.”

Toner thinks BITF will post Adjusted EBITDA of $123.1-million on revenue of $295.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $301.7-million on a topline of $583.6-million the following year.

Toner says a lot has changed since the last time crypto stocks made a move.

“BTC has rallied significantly since last summer. The hash rate has moved up as well. So far, unlike last cycle, prices for mining ASICs have not moved up, and mining continues to be profitable. The payback on new machines, which are much cheaper than at last cycle’s peak, is reasonable, at less than two years. Nonetheless, we believe even at current prices, miners have significant leverage to higher BTC prices. Post-halving, we estimate BITF would have 54% gross margins at current prices. If BTC prices double, miner gross profits would nearly triple, assuming a modest increase in hash rate.”