30 Day 80% Gain on KASH, BUT Here is Our Fair Value Post Acquisition

equity research analysis

Hashchain Technology (KASH:TSXV 36 cents)

www.hashchain.ca

108M Shares Outstanding to Feb 28th

9M being issued to buy 1000 new mining rigs (computers)

55M being issued to buy 5000 more rigs (news Wednesday)

Post acquisition shares outstanding: 172 Million

9,870 Mining Rigs should be in operation by July

 

Wednesday was a very busy news-day for Hashchain. Financials and a (proposed) acquisition that effectively doubles the size of their company – but they are also issuing a huge amount of 35 cent stock in the process.

We have been sitting on a short term 80% gain but lost some of that with the acquisition news. I personally sold half my position near 40 cents (22 cent average cost) but I am now on the fence with the balance. I want “some” exposure to cryptocurrency mining and blockchain, but unsure to what degree.

Below is a review of what we feel is fair value for KASH (assuming the asset acquisition they announced Wednesday closes as planned.

A couple things to keep in mind first;

(1) the following doesn’t take into account the value of their blockchain division NODE40. This definitely has value, but how much is extremely hard to determine.

(2) Bitcoin is horrendously volatile and we don’t know if six to twelve months from now it won’t be at Zero, $9000 USD (its current value), or >$20,000. It is impossible to know and the future value of Bitcoin is really what you are “gambling” on by owning KASH.

Here is a Valuation Estimate That was Sent to Paid MicroCap Subscribers Wednesday April 25th:

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This acquisition was either an efficient use of premium priced paper, or proof that these publicly traded miners are over valued.

KASH essentially (very roughly) bought a mirror image of themselves, for half the valuation. Using some rough numbers we can show that. The main idea here is that the ratio is key and the actual ebitda number doesn’t matter as long as you assume each of kash and the target company would make the same amount of money (kash rigs = 4870, target rigs = 5000).

Let’s assume each company has ebitda of $10 million. Kash has a value of $38 million, or a 3.8x multiple. The target company had a valuation of $19 million, or 1.9x. Combined this company will now have ebitda of $20 million. If you apply the acquisition ratio you end up with a total valuation of $38 million for the company. If you apply KASH’s prior valuation you end up with a $76 million valuation.

With 172 million shares outstanding (post acquisition) the combined entity would be valued at $0.22/share using the “acquisition” valuation metric. If you bring this up to KASH’s prior valuation you end up at $0.44/share. An average multiple between the two and you are right back near $0.33/share.

How you view this acquisition likely comes down to your opinion on miners in general. If you feel that they are overpriced, then this helps you prove that with a concrete acquisition multiple. However, if you are bullish on the sector and thought KASH was fairly valued, then they just created significant value by using premium priced shares to purchase a discounted miner and increase their leverage to the space.