$cifr & $migi
Speculative adds
Sometimes we make terrible calls and sometimes fantastic ones. We were just looking back at our October 6th market call of a bottom based on sentiment being so negative. You cannot use our write ups straight up as investing gospel and for sure we are not he always right. This substack is intended to give you a framework for the market and your investing ideas along with some names that might fit your portfolio. Equally, we are never going to say buy $BKKT for a squeeze. Yes, it has gone from $8 to $50. Yes they had an announcement Mastercard that seems like good news, but really? Their crypto exchange is all but doing $0 daily. The market cap is now about $15 billion. That’s on you to trade and hopefully not get buried. Equally, we highlighted months and months ago the renewables opportunity in $GPRE $AMTX and the more recent focus on carbon capture with names such as $DEN, $CRC and $LFG. We often can be early. Right now with the infra bill coming this group appears well positioned to say the least. We hope you enjoy our writings and it makes you a better investor. Ok, enough! Let’s discuss $CIFR & $MIGI.
So $CIFR is Cipher Mining. It is de-Spac’d and the PIPE unlock happened about a month ago. So, this one should trade based on fundamentals, not stock supply/demand here on out. The company has about 200m shares out or a $1.6 billion market cap with $500m cash on the balance sheet to be used for the bitcoin mining build outs. As stated above on $BKKT, you sometimes barely need to know what a company does let alone if their “plans” make sense for the market cap at any given time. Having said that, we thought let’s use Cipher Mining investor presentation, projections and see where this stock can go “if they are right”. If you remember we did the same thing with $ASTS which has its major catalyst in March 2022 and we opined this can be a $100 stock or more.
Cipher has proprietary ASICs, good hash rates and all the right buzz words for this space. They are in build out mode and they show the ability to mine 10k BTC in 2022 and double that in 2025. Along the way all the players also see transaction fees on the network but lets exclude that for these purposes. So, 10k coins at current $60k would be $600m in revenues with 70% EBITDA margins and FCF conversion of 50%. So, a cool $300m in free cash flow for 2022 versus a market cap of $1.6b, or about a 20% FCF yield. And obviously the amount of cash will just keep piling up at Cipher. We are being a bit facetious but Cipher is a buy here! It is worth owning and seeing it play out (or not) and trade with the BTC ups and downs. Set a stop loss where the story they are telling isn’t right or you suddenly get negative on BTC prices albeit even at $40k it would still be interesting.
We hope you appreciate this level of breaking down a story. What do we know. What don’t we know and assign a risk reward. Yes, it would be great to visit the $CIFR facilities. When we started in the business we did that often. These days the market is more “what’s in play”, short squeezes, gamma trades and FOMO. Just like when you eat too much, you get FULL, we see the overall indices as getting to that full point. Microsoft we love but not at 36x 2022 earnings. Tesla bulls are 100% right in their positioning for the next decade, but at some point that’s reflected. Another $200 points or 20% is nice, but that seems FULL to us. We think the better money will be made in smaller names that are lesser known. When interest rates go up, and they will, price to sales of 50x or $MSFT at 36x earnings will seem very rich and deflate to no one’s surprise! In summary, we think once we leave the 4Q seasonal euphoria, money grab, the overall market is in big trouble in 2022 (early prediction!).
Back to BTC, so $CIFR looks like a good trading vehicle at these prices. How about $MIGI? Mawson Infrastructure, another BTC mining play. CLSA, the broker, just did a financing at $8 in August and the stock was recently uplisted to the Nasdaq from OTC at $11.50. Before we go through all of the story details, we want to note the unlock filed Friday from the early investors of up to 8m shares. We think this will give us more liquidity and hopefully a good entry point ahead. In total there are nearly 70m shares outstanding so about a $700m market cap at $MIGI. Based on their capacity and hash rate for 2022, the company would expect to generate BTC revenues from mining of around $525m with EBITDA margins of 50% or more, so around $250m in cash flow from operations. So, less than 3x cash flow? Kinda makes you laugh how cheap this is given BTC mining is a collecting of “cash” and recurring each year. Is this something to add to your speculative bucket especially if it comes in on the unlock? We think so.
The Mawson investor deck can be found at Microsoft PowerPoint - Mawson - Investor Presentation - August 2021 DRAFT 1.3 (mawsoninc.com)
Cipher Mining can be found at: https://www.sec.gov/Archives/edgar/data/1819989/000121390021013594/ea136931ex99-2_goodworks.htm
Happy Hunting!
Rob’s Educated Guesses
