Argo Blockchain PLC

Argo Blockchain PLC (LON: ARB) is a Cryptocurrency Mining Company, which is listed on the Main Market of the London Stock Exchange.

Investment Rationale – SPECULATIVE BUY at GBX 113.00

• Bitcoin prices topped US$57,600, risen to its highest level since 12 May 2021. The approval of a Bitcoin ETF has been a major milestone for getting Bitcoin accepted as a mainstream financial asset.
• In the H1 FY21, the Company reported year-on-year revenue and EBITDA increase of 180% and 332%, respectively. The profit before tax amounted to £10.7 million in H1 FY21 against £0.5 million in H1 FY20. The growth was driven by an increase in Bitcoin prices coupled with a production increase.
• On 27 September 2021, ARB announced the closing of its offering for an aggregate of 8,525,000 American Depositary Shares, and raised nearly US$127,875,000, before deducting underwriting discounts and commissions.
• From a technical standpoint, the stock price is nearly at the lower standard deviation of the Bollinger Bands, while the RSI (~36.05) confirms the oversold position.
• In H1 FY21, ARB reported a better EBITDA margin and net margin than the industry median of 29.0% and 9.9%, respectively.

Key Risks

• Rising energy pressure can cap the BTC’s prices rally. Meanwhile, ARB’s mining profit margin has shown a slight decline in September 2021 against August 2021.
• The spike in US Treasury Yield can keep the Bitcoin prices under pressure. Moreover, increase in interest rates sooner than expected can curtail the growth.
• The pumping in altcoins can put pressure over BTC as well.

Recent News

Expansion of Mining Capacity: On 30 September 2021, ARB purchased 20,000 Bitmain Antminer S19J Pro machines, which is expected to increase the Argo's hashrate by over 2 Exahash.

September Operational Update (as on 07 October 2021)

(Source: Company Website)

• ARB mined 165 BTC in September 2021, against 206 BTC in August 2021.
• At the end of September, ARB owned 1836 BTC.
• It generated a mining revenue of £5.50 million ($7.59 million).

Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion 

ARB expects to have a record profit growth in FY21, while it is still trading below 52-week mid-level and giving a lucrative opportunity to invest at the current levels. Argo Blockchain has conducted several fundraisings recently to invest in new machines and fund working capital requirements. On 10 September 2021, ARB entered a Bitcoin-backed loan agreement for £18.05 million with a maturity date of 29 October 2021. The proceeds will be used for building the West Texas data centre and support operating cash flow requirements.

Furthermore, the Company has shown its commitment to reducing environmental impact and tackling the crucial sustainability issues well. The stock made a 52-week High and Low of GBX 340.53 and GBX 5.00, respectively.

Based on the financial growth, favorable BTC prices, recent fundraisings, climate positive strategy, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Argo Blockchain PLC at the closing market price of around GBX 113.00 (as on 12 October 2021), with lower double-digit upside potential based 9.52x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

RM PLC

RM PLC (LON: RM.) is a FTSE All-Share listed Company that supplies technology and resources to the education sector.

The interim dividend of 1.7 pence per share was scheduled for payment on 27 August 2021, while the shares went ex-dividend on 22 July 2021.

Investment Rationale – SPECULATIVE BUY at GBX 223.50

• British unemployment rate has dropped, as payrolls topped record high in September 2021.
• The improvement in global education fundamentals keeping the positive medium-term outlook. The digital and automation investment programmes shall yield operational and financial benefits.
• Moreover, the reduced net debt showed a healthier state of the balance sheet from the start of FY21, reflecting a better potential to build a path to sustainable growth for RM.
• As per valuation metrics, EV/Sales, Price/Earnings, and EV/EBITDA multiples of the RM PLC are currently lower as compared to the industry median.
• From a technical standpoint, the stock price is hovering between the middle standard deviation and the lower standard deviation of the Bolling Bands.

Risk Assessments

• Increase in UK jobs can encourage the Bank of England towards a first post-pandemic interest rate hike.
• Rising cost of living with inflationary concerns has impacted the British consumer confidence.
• Sustained high demand for IT products and consumer electronics categories has created logistic delays, which can impact the Company’s growth strategy.

Recent News

Board Changes: On 25 September 2021, RM announced that the Chairman, John Poulter, has advised the Board of his intention to step down as Chairman of RM.

Interim Results (for the six months ended 31 May 2021, as on 6 July 2021)

 (Source: Company Website)

• Despite UK Schools being closed for 8 weeks during H1 FY21, RM reported improved financial performance.
• Revenue jumped 21% year-on-year in H1 FY21 on the back of strong trading in RM Resources, which nearly doubled the figure of adjusted operating profit from H1 FY20.
• The balance sheet also remained robust with movement of the pension position from a deficit to a surplus, following the improvement in net debt position.
• The interim dividend for H1 FY21 was recommended as 1.7 pence (H1 FY20: Nil)

One Year Share Price Chart

Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

RM anticipates a positive medium-term outlook on the back of improved education fundamentals, expected benefits from digital programmes, improved net debt position, and solid trading momentum. The strong UK curriculum resources sales boosted the revenue in Q2 FY21. Moreover, the reopening of UK schools has placed the Company in good position to deliver growth.

With lower net debt, the Company is well-placed to generate positive operating cash flows as well. Furthermore, the accelerated positive market trends and long-term market drivers shall bring attractive growth opportunities for the Company. The stock made a 52-week high and low of GBX 260.00 and GBX 162.50, respectively.

Based on the strong financial performance, reduction in net debt, the re-opening of UK schools, surplus of pension position, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on RM PLC at the closing market price of GBX 223.50 (as on 12 October 2021), with lower double-digit upside potential based 18.46x Price/Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

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