Bitfarms (TSX-V:BITF) received a ‘Speculative Buy’ rating and a $2 target price from analysts at Stifel GMP as the brokerage kicked off coverage of the low-cost crypto miner.
With a long-standing track record as a proof-of-work mining company, analysts at Stifel said Bitfarms has strategically established a footprint of 10 facilities across geographically diverse regions that provide access to sustainably low-cost, surplus electricity.
“The company operates under a self-mining business model, leveraging cheap power, efficient hardware, and operational excellence to generate industry-leading yield-per-exahash and margin performance,” the analysts wrote in an April 4 client note. “Management recently restructured its balance sheet, which significantly reduced debt obligations and offers financial flexibility ahead of the upcoming BTC halving event expected to occur in May 2024.”
The analysts noted that the Bitcoin spot price has risen roughly 70% since the start of the year, spurred on by the recent regional banking crisis and continued warning signs flagged by credit markets.
“The value proposition of a decentralized alternative with a finite supply, immense property rights, and a defined issuance schedule has become more attractive in comparison to the reactive monetary policy of central banks,” they added. “While the spot price has appreciated immensely, mining economics have improved since FQ4/22 but to a lesser extent as the network hash rate continues to climb.”
Catalysts and risks
The analysts noted that near-term catalysts for the company included the approval of a power permit for its Rio Cuarto facility in Argentina’s Cordoba province, as well as the easing of importation restrictions in Argentina. This would allow Bitfarms to scale the first fully-built warehouse and reach approximately 6.0 EH/s capacity by year-end (fully-funded), while also improving power costs and efficiencies from an extremely attractive power rate of roughly about US$0.03/kWh.
Further upside to unit economics is possible should the company pursue the build-out of the remaining three warehouses in Argentina and bring an incremental approximately 200MW capacity online, they added. Bitfarms has also recently improved its financial flexibility following the retirement of debt obligations ahead of the Bitcoin halving event and is well-positioned for potential organic and inorganic growth opportunities.
Key risks include Bitfarms’ exposure to price risk from falling Bitcoin spot prices as well as relative network hash rate growth, which could put pressure on revenues and profitability, the analysts said. Regulatory uncertainty remains a looming long-term risk, which could impact the rate of adoption or underlying spot price.
“Although geographic diversification helps to spread concentration risk, we note that Bitfarms has operations in both domestic and overseas emerging markets where government intervention is possible,” the analysts said. “Expansion risk is also present at the site in Argentina as future development/scaling is contingent on both the approval of a power permit and the easing of import restrictions.”
Contact the author at stephen.gunnion@proactiveinvestors.com