Hut 8 Mining Corp

HUT Details

Hut 8 Mining Corp (NASDAQ: HUT) is a bitcoin mining firm in Canada. The company is a digital asset miner that promotes open and decentralized systems. It uses specialized equipment to tackle computational issues to validate bitcoin blockchain transactions and provides institutional clients with hosting services. It has five data mining centres and provides scalable cloud services in its information technology portfolio. Its data centre business spans over 36,000 square feet of geo-diverse data centre space, fueled by renewable energy sources.

Latest News

• Production Update: The firm mined a total of 309 Bitcoin, resulting in a daily production rate of 10.3 Bitcoin. As of April 30, 2022, there are 6,769 Bitcoins in reserve. Hut 8's installed working capacity is now 2.58 EH/s, and the company's activities were 100% self-mined on May 1, 2022, after hosting miners for the previous month.
• Acquisition of TeraGo Inc.: TeraGo Inc. company was acquired on January 31, 2022, establishing the company as a leader in high-performance computing with five data centres throughout Ontario and British Columbia and roughly 400 commercial clients. The high-performance computer business presently generates CAD 1.6 million in monthly recurring income.
• Declaration of Q1 FY22 Financial results: Hut 8 Mining Corp. released its financial results for the first quarter of FY22 on May 12, 2022.

Q1 FY22 Results:

• Robust Revenue Growth: The company's sales in Q1 FY22 were CAD 53.3 million, up from CAD 32.0 million in Q1 FY21. The company's digital asset mining activities, which mined 942 Bitcoin and produced CAD 49.3 million in revenue, fueled the expansion. The increase in Bitcoin mining in Q1 FY22 compared to Q1 FY21 is attributable to the deployment of gradually more efficient miners.

• Multifold Jump in Bottomline: In Q1 FY22, net income was CAD 55.7 million, and earnings per share were CAD 0.33, compared to net income of CAD 19.1 million and earnings per share of CAD 0.17 for Q1 FY21. Reduced general and administrative costs in Q1 FY21 offset higher revenue and non-cash gain on revaluation of warrant obligations in Q1 FY22.

• Digital Assets: Bitcoin was the most valuable digital asset as of March 31, 2022, with a balance of 6,460 Bitcoin and a market value of CAD 367.6 million. This sum comprised 4,460 Bitcoin in custody, and 2,000 Bitcoin lent out.

Key Risks

• Price of the Asset Mined: The company's principal operation is Bitcoin mining, and the price of HUT stock has recently been in a declining trend, mirroring the price of BTC currency. Therefore, the cost of BTC is the significant risk faced by HUT 8 Mining Corp.
• Macro-Economic Factor: With the increasing inflation in all the countries across the globe, the rising prices of input variables have increased significantly, affecting the profitability margins for the company.

Outlook

• FY22 Estimates: Revenue from the company's newly acquired high-performance computer activities increased by CAD 3.3 million, or two months' worth of contributions. Throughout 2022, the company expects recurring revenue from the high-performance computing sector to climb 15-18%. According to Hut 8, this acquired firm will yield gross margins of between 35 and 40%, with chances to further optimize margins.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: REFINITIV, Analysis: Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.            

Stock Recommendation

HUT's stock price has fallen only 80.78% in the past six months and is currently leaning towards the lower side of its 52-week range of USD 2.25 to USD 16.57. HUT stock is under a long-term bearish cycle with the current price below both short-term (50-day) SMA and long-term (200-day) SMA. Price of HUT has a very high correlation with the price of underlying BTC. Currently, BTC is at its essential support, which we expect to hold. This will lead to an upward movement in both BTC and HUT stock. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 3.11.

Considering the strong mining results for Q1 FY22, solid topline performance, positive outlook, associated risks, and current valuation. We recommend a "Speculative Buy" rating on the stock at the current price of USD 2.50 as of May 23, 2022, at 08:48 AM PDT.

1-year technical chart as of May 23, 2022, at 06:50 AM PDT. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.