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Argo Blockchain Plc
Argo Blockchain - Initiating on a robust platform with exceptional potential

We initiate coverage of Argo Blockchain with a 17p target price and conservative forecasts. Argo operates a highly efficient cryptocurrency mining platform in Canada and the US, where it uses c16k specialised computers/machines to mine the cryptocurrencies Bitcoin (c90% of revenue) and Zcash. It differentiates because of its access to abundant, low cost power in these locations, and the proprietary technology that its team has created to optimise its machines’ operations. Argo has already achieved a cash payback of 1.3x on the machine investment it made in 2019, and we expect that Argo’s platform will deliver strong growth in the rapidly expanding cryptocurrency market, where the price of Bitcoin has increased to $19,000 from $9,000 in May 2020. Using conservative assumptions for mining rewards, and a spot Bitcoin price, we introduce forecasts for organic revenue growth of +34% to £25.3m, EBITDA growth to £11.1m from £5.6m, adjusted EPS of 0.7p, and EFCF of £7m. We also highlight in our 95p upside case that Argo’s platform is strongly geared to the interaction between Bitcoin’s price and the difficulty of mining Bitcoin, and in our downside case we highlight that under highly adverse assumptions Argo would still continue to generate EFCF, and deliver FY23 net cash of £11m or 4p per share. This attractive skew of share price outcomes demonstrates that Argo looks undervalued on 18x FY21 P/E, 9x FY21 EV/EBIT, and 17% FY21 EFCF yield, with peers on 26-40x P/E, EV/EBIT of 21-28x, and EFCF yields of 2-3%. We watch for changes in Bitcoin’s price and mining difficulty, Argo demonstrating operational efficiency at its results, and the potential acquisition of its Canadian datacentres.

  • 26 Nov 20
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