Bitfarms: Potentially Inexpensive Based On Normalized Annualized Cash Flow

On May 26, Bitfarms Ltd. (TSXV: BITF) reported strong 1Q 2021 results. Revenue and adjusted EBITDA in the period were US$28.4 million and US$19.7 million, respectively. The company’s 1Q 2021 revenues were approximately triple that of both the preceding quarter and the year-ago period. Moreover, adjusted EBITDA in 1Q 2021 was 450% – 600% better than 4Q 2020 or 1Q 2020.

Bitfarms’ 1Q 2021 Operating Cash Flows Could Imply Attractive Valuation Level

Importantly, Bitfarms’ 1Q 2021 results were achieved during a period when the Bitcoin price averaged around US$45,000, not the US$55,000 – US$64,000 price it averaged from mid-March through early May. As a result, annualizing the company’s 1Q 2021 US$19.7 million adjusted EBITDA to reach an approximate normalized US$80 million annual operating cash flow level seems like a reasonable assumption. (This is of course dependent on Bitcoin’s avoiding another “flash crash” in 2021.)

Reflecting Bitfarms’ C$75 million recent private placement (closed May 20, 2021), the company’s shares outstanding are around 160 million. At Bitfarms’ May 27 share price of C$5.52, its stock market capitalization is about C$880 million. The company’s net cash position as of March 31, 2021 is C$85 million. Subtracting this sum from C$880 million, along with the C$75 million of cash proceeds from the private placement, implies that Bitfarms’ current enterprise value (EV) is about C$720 million.

In turn, Bitfarms trades an EV-to-adjusted “normalized” EBITDA of around 7.2x (C$720 million divided by ~C$100 million of EBITDA). A 7.2x EV/EBITDA ratio is considered quite low for a growth company. Indeed, the average EV/EBITDA ratio for every industry in 2019 (a “normal,” non-pandemic year) was considerably higher than 7.2x.

(in thousands of U.S. dollars, except for shares outstanding)1Q 20214Q 20203Q 20202Q 20201Q 2020
Adjusted EBITDA$19,701$3,556$365$1,435$2,780
Operating Income$16,471$544($2,841)($1,482)($1,510)
Operating Cash Flow($8,436)$3,084$1,691$1,009$1,439
Cash, Including Digital Assets$85,431$5,947$1,324$1,361$2,332
Debt – Period End$15,913$28,368$24,385$21,929$21,384
Shares Outstanding (Millions)145.088.984.784.784.6
Number of Bitcoin Mined5985775358151,087
Number of Bitcoin Owned5480000
Avgerage Bitcoin Price in Quarter$45,000~$15,000$10,615$8,429$8,261
Variable Bitcoin Mining Cost Per Bitcoin Mined$8,400$7,500$7,500$5,075$3,988

Details from 1Q 2021 Results

Bitfarms’ breakeven cost per Bitcoin mined is only about US$8,400, a level attributable primarily to the company’s access to low-cost hydroelectric power in Quebec. Bitfarms’ variable production costs could potentially move even lower in the future, reflecting the company’s attractive power purchase agreement with a utility-grade private power producer in Argentina. Under the accord, Bitfarms can purchase up to 210 megawatts of power over an eight-year period. Over the first four years, the electricity purchase price will be US$0.022 per kilowatt-hour, one of the lowest rates available to any Bitcoin miner in the world.

Bitfarms’ Argentina facility with low-cost power purchase agreement will be an important factor in the company’s 2022 results.

The company’s results have improved even as the number of Bitcoin it mines each quarter has declined. The company mined 815 Bitcoin in 2Q 2020, but fewer than 600 in each subsequent quarter. Increased competition explains some of this decline, but a larger factor was the May 2020 Bitcoin halving event.

Bitfarms’ 1Q 2021 results were solid, and the stock trades at what seems to be an attractive EV-to-EBITDA level. Furthermore, Bitfarms’ planned low-cost Argentina Bitcoin mining facility could generate significant incremental cash flow for the company beginning next year.

Bitfarms Ltd. last traded at $5.52 on the TSX Venture Exchange.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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