Typically, main stream banks are late to the party when it comes to coverage of early stage companies because these companies still present risk to conservative investors. However, since we are in the early innings of the new blockchain/cryptocurrency economy that is here to stay, firms are starting to look at companies that have adopted the new model early.
One such company is HIVE Technologies Ltd. (TSX-V: HIVE) which listed preceding the huge upswing in bitcoin prices that has attracted analysts’ attention and which presents a compelling opportunity to invest in the new sector.
On Monday, GMP Richardson Securities analyst Deepak Kaushal, P.Eng., CFA initiated coverage of HIVE with a “spec buy” recommendation.
Mr. Kaushal notes that HIVE offers investors a unique exposure to the emerging blockchain sector with a competitive advantage, high growth, free cash flow, attractive return on capital and exposure to diversification in the cryptocurrency space.
The investment thesis presented by Kaushal is that blockchain technology enables new decentralized economic systems that will profoundly change the nature of monetary transactions and will become critical to the global economy.
“For investors, we see a new, high-risk high-reward sector that has low correlation to other investment classes. We see miners as essential infrastructure providers for blockchain networks that can build diversified portfolios of cryptocurrencies at attractive returns on-investment. Today miners are accelerating investment to capture cryptocurrencies as early as possible, to maximize the potential for value appreciation. Over the long term, we believe miners will become utility-like in their risk-return profile, as blockchain networks mature and cryptocurrency spot price volatility stabilizes. We think miners are a good option for new investors to the sector given the potential for diversification to mitigate company and application-specific risk.”
He set a price target of $5.35.
Secondly, PI Financial analyst David Kwan also initiated coverage noting that HIVE is well positioned to outperform its peers. Mr. Kwan recommended the Vancouver-based firm with a “buy” rating.
The analyst cited Hive’s low-cost operations in stable jurisdictions and its partnership with cryptocurrency miner Genesis Mining Ltd. which brings a “key competitive advantage.”
“HIVE is leveraging Genesis’ extensive cryptocurrency mining experience and expertise as well as benefiting from cheap power costs, access to leading edge technologies, and lower operating and equipment costs amongst other things… Genesis owns over 25 percent of HIVE and has two representatives on the Board. We believe Genesis has a strong financial incentive to make HIVE a success.”
However, he warned that investing in the cryptocurrency and blockchain sector remains a risky proposition because of the volatility seen in cryptocurrencies and share prices of companies in the sector. He expects regulatory uncertainty and creep to be a problem in the near term.
However, Mr. Kwan is optimistic because Hive stands out in the space. “Some of the key attributes of a successful miner are cheap power, a cool climate…With operations in Iceland and Sweden and its partnership with Genesis, we believe HIVE checks all of these boxes and will be one of the lower cost miners, enabling them to generate stronger margins and cash flow in the good times and better weather the down times.”
The analyst set a price target of $5.25.
As of the close on Tuesday Jan. 30, 2017, shares in HIVE could be purchased for $2.60.
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