CoinShares International — Leaving 2022 turmoil behind

CoinShares International (OMX: CS)

Last close As at 21/06/2024

SEK62.50

2.10 (3.48%)

Market capitalisation

SEK4,228m

More on this equity

Research: Financials

CoinShares International — Leaving 2022 turmoil behind

CoinShares International (CS) has moved on from the turmoil in digital asset markets in 2022 and has delivered Q123 EBITDA of £8.4m, with a meaningfully positive revenue and income contribution from both its passive asset management services (£9.4m) and its proprietary trading activities (£6.7m). It maintains a prudent cost management approach, with administrative expenses (incl. D&A and direct costs) of £7.6m in Q123, down c 22% y-o-y and broadly comparable with £7.9m in Q422 (excluding a goodwill write-down). It now trades at 0.8x its end-March 2023 book value.

Milosz Papst

Written by

Milosz Papst

Director, Financials

pile of coins on technology financial graph background.

Financials

CoinShares International

Leaving 2022 turmoil behind

Q123 results

Financials

30 May 2023

Price

SEK30.50

Market cap

SEK2,078m

SEK13.3560£

US$1.2355/£

Total equity at end March 2023

£205.8m

Shares in issue

68.1m

Free float

28.5%

Code

CS

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.1)

(6.3)

(24.5)

Rel (local)

1.2

(4.8)

(24.8)

52-week high/low

SEK42

SEK19

Business description

CoinShares International develops innovative infrastructure, financial products and services for the digital asset class. It manages and provides liquidity for exchange traded products and undertakes proprietary trading in digital assets.

Next events

AGM

31 May 2023

Q223 results

1 August 2023

Analyst

Milosz Papst

+44 (0)20 3077 5700

CoinShares International is a research client of Edison Investment Research Limited

CoinShares International (CS) has moved on from the turmoil in digital asset markets in 2022 and has delivered Q123 EBITDA of £8.4m, with a meaningfully positive revenue and income contribution from both its passive asset management services (£9.4m) and its proprietary trading activities (£6.7m). It maintains a prudent cost management approach, with administrative expenses (incl. D&A and direct costs) of £7.6m in Q123, down c 22% y-o-y and broadly comparable with £7.9m in Q422 (excluding a goodwill write-down). It now trades at 0.8x its end-March 2023 book value.

Year end

Revenue (£m)

Other gains and income (£m)

Adjusted
EBITDA* (£m)

Adjusted
EPS (£)

DPS
(£)

P/E
(x)

Yield
(%)

12/21

80.8

70.9

121.1

1.62

0.0

1.4

N/A

12/22

51.5

(19.6)

(6.5)

0.04

0.0

57.4

N/A

12/23e

37.5

25.5

31.8

0.26

0.0

9.0

N/A

12/24e

48.2

30.5

41.1

0.45

0.0

5.1

N/A

Note: *Sum of revenue, other gains and income (income and gains from capital markets infrastructure and gains on principal investments) less administrative expenses excl. D&A.

Investor sentiment towards digital assets warms up

CS’s passive management fee income benefited from a partial price recovery in digital assets and blockchain equities ytd, with fee revenue up by 7% versus Q422 (but still down 48% y-o-y). Digital assets were supported by (1) an improving risk appetite; (2) greater confidence that a peak in the Fed rate is near; (3) higher demand for bitcoin (BTC) as a hedge against turmoil in the traditional banking system; and (4) technological advancements, most notably Ethereum’s successful Shanghai upgrade. The impact of regulations on digital assets differs by jurisdiction; the US looks less encouraging with the multiple enforcement actions of the Securities and Exchange Commission (SEC) and the dispute over regulatory oversight between the SEC and the Commodity Futures Trading Commission, while in the EU the recent Markets in Cryptoassets regulation provided more clarity.

CS launched two index ETPs recently

With withdrawals of staked Ether (ETH) now enabled, CS is charging a 0% fee on its CoinShares Physical Ethereum ETP to accumulate further AUM while it seeks to introduce a mechanism to pass on some of the staking rewards to unit holders. CS recently introduced two multi-asset CoinShares Physical ETPs, which are also subject to a 0% management fee. Overall, the CoinShares Physical platform and CS’s blockchain equities platform attracted US$29.3m and US$20.8m of net inflows in Q123, respectively. Meanwhile, net outflows from XBT Provider Tracker moderated significantly year-on-year, at just US$40.5m versus more than US$200m in Q122. CS is aiming to complement its passive products with active asset management services and plans to announce its first investment strategy in Q223.

Valuation: Share price still looks undemanding

Assuming continued digital asset adoption, we value CS at SEK79.0 per share (vs SEK77.4 previously). Using a more cautious scenario with digital asset price growth of only 2% pa, we value CS at SEK34.6.

Q123 results: Profitable amid no external shocks

CS’s revenues still come largely from management fees charged on its legacy XBT Provider products (see our latest outlook note for details). The company accrued £8.3m in fees from this product range in Q123 (vs £16.3m in Q122, see Exhibit 1). While these fees are charged on a daily basis, corresponding cash inflow for CS occurs only on redemption by an investor (in Q123, c US$3m in cash was released to CS in that way). Fees from CoinShares Physical and blockchain equities products (which are collected in cash on CS’s request) amounted to £0.6m and £0.3m in Q123, respectively.

CS introduced two multi-asset ETPs earlier this year. The CoinShares Physical Top 10 Crypto Market ETP aims to provide investors with direct exposure to the CoinShares – Compass Top 10 Crypto Market Index, which measures the performance of the largest digital assets (with current BTC and ETH weighted at 35% each, supplemented by Ripple, Cardano, Polygon, Solana, Polkadot, Litecoin, Tron and Avalanche). The CoinShares Physical Smart Contract Platform tracks the CoinShares – Compass Smart Contract Platform Index, measuring performance of the largest native tokens of smart contract-enabled platforms, led by Ether (35% weight), followed by Cardano, Polygon, Polkadot, Tron, Solana, Avalanche, Chainlink, Stellar and Algorand. We believe the introduction of multi-asset ETPs by CS is a good move, as we expect more sophisticated products to attract a considerable share of the total crypto ETP market in the long term. That said, we acknowledge that the products have been launched at quite difficult times for the industry and for now have negligible assets under management.

Management highlighted during the Q123 earnings call that it plans to establish an active asset management business in 2023, seeding several strategies from its own balance sheet. It plans to recruit professionals who will help it transform its pure proprietary business model to a traditional active asset manager platform. In terms of marketing, we understand that CS also plans to leverage its existing sales team, which is responsible for passive products. More details will be communicated during the Q223 earnings call, but management indicated that its first strategy should have capacity of at least US$200–300m.

A moderate level of XBT Provider inflows and outflows resulted in liquidity provisioning income of £0.7m in Q123 (vs £2.0m in Q122). At the same time, in Q123 CS saw an encouraging pick-up in income from delta neutral strategies (£1.4m vs £0.6m in Q122) and fixed income activities (£2.2m vs £1.2m in Q122), despite the reduced number of counterparties CS now trades with. The company’s decentralised finance (DeFi) gains of £3.0m (vs £6.3m in Q122) came largely from ETH staking. According to ethereum.org, the current staking yield stands at c 5.6% pa.

Exhibit 1: Q123 results highlights

£m, unless otherwise stated

Q123

Q122

change y-o-y

Revenue, of which:

9.4

18.0

-48.0%

XBT Provider

8.3

16.3

-48.9%

CoinShares Physical

0.6

0.4

49.9%

Equities platform

0.3

0.5

-37.2%

B2C

-

0.7

N/M

Other

0.1

0.1

77.3%

Capital market infrastructure income/gains, of which:

6.7

10.2

-34.2%

Liquidity provisioning

0.7

2.0

-65.1%

Delta Neutral Trading Strategies

1.4

0.6

138.9%

Fixed income activities

2.2

1.2

85.3%

Decentralised Finance (DeFi)

3.0

6.3

-51.8%

Other

(0.6)

0.2

N/M

Principal investment gains/(losses)

(0.6)

(0.1)

N/M

Administrative expenses excluding D&A

(6.9)

(9.2)

-25.4%

Adjusted EBITDA

8.4

18.7

-54.9%

Adjusted EBITDA margin

54.7%

66.9%

-18.3%

Depreciation and amortization

(0.8)

(0.6)

35.8%

Finance expense

(1.3)

(2.2)

-41.6%

Income taxes

(0.1)

0.1

N/M

Currency translation differences

(3.4)

4.1

N/M

Total comprehensive income

2.9

20.2

-85.5%

Source: CoinShares International

Forecast revisions

We have raised our FY23 adjusted EBITDA forecast to £31.8m from £25.2m previously on the back of increased expectations in terms of capital market infrastructure income and gains. We have also changed our forecast income/gains split, assuming a higher proportion from staking rewards following the successful implementation of the Shanghai upgrade. That said, our total comprehensive income forecast remains broadly unchanged due to negative currency translation effects. Our FY24 and FY25 adjusted EBITDA forecasts remain largely unchanged.

Exhibit 2: Summary of forecast revisions

£m, unless otherwise stated

FY22

FY23e

FY24e

FY25e

Actual

Old

New

diff (%)

Old

New

diff (%)

Old

New

diff (%)

Revenue, of which:

51.5

37.8

37.5

(0.7)

50.0

48.2

(3.6)

73.9

71.1

(3.9)

XBT Provider

46.0

31.7

31.9

0.6

35.2

34.2

(3.0)

46.4

44.9

(3.2)

CoinShares Physical and other*

2.3

4.2

3.8

(10.5)

12.0

11.3

(5.6)

23.3

22.1

(5.3)

Block index

1.9

1.5

1.5

(3.1)

2.2

2.1

(3.2)

3.0

2.9

(3.2)

B2C

0.9

0.0

0.0

N/A

0.0

0.0

N/A

0.0

0.0

N/A

Capital market infrastructure income/gains, of which:

(17.4)

20.9

26.3

25.9

32.1

30.5

(5.1)

41.0

40.9

(0.2)

Liquidity provisioning

4.5

2.6

3.0

13.2

6.6

4.6

(29.9)

5.1

4.3

(15.1)

Delta Neutral Trading Strategies

2.6

7.6

4.6

(39.6)

11.7

5.4

(54.1)

16.6

12.0

(27.6)

Fixed income activities

5.0

5.0

6.7

33.7

5.1

8.0

58.8

5.1

9.6

88.7

DeFi

13.9

4.6

12.0

163.6

7.7

12.5

61.2

13.2

15.0

13.8

Other

(43.3)

1.1

0.0

(100.0)

1.1

0.0

(100.0)

1.1

0.0

(100.0)

Principal investment gains/(losses)

(4.9)

0.0

(0.7)

N/A

0.0

0.0

N/A

0.0

0.0

N/A

Administrative expenses excluding D&A

(35.3)

(33.4)

(30.9)

(7.6)

(41.2)

(37.0)

(10.2)

(50.9)

(45.7)

(10.3)

Adjusted EBITDA

(6.5)

25.2

31.8

26.3

41.0

41.1

0.4

64.0

65.1

1.7

Total comprehensive income

3.0

17.4

17.4

(0.2)

29.3

30.4

3.4

51.4

53.6

4.1

Source: CoinShares data, Edison Investment Research. Note: *Includes fees from CoinShares Physical, 3iQ and Invesco.

Exhibit 3: Financial summary

Year end 31 December
£’000s unless otherwise stated

FY18

FY19

FY20

FY21

FY22

FY23e

FY24e

FY25e

FY26e

FY27e

Income Statement

 

 

 

 

 

 

 

 

 

 

Revenues

10,549

11,331

18,389

80,755

51,484

37,550

48,183

71,060

88,182

96,280

Administrative expenses

(10,927)

(9,284)

(14,312)

(32,059)

(38,166)

(33,932)

(40,007)

(48,735)

(56,774)

(62,308)

Other operating income

4,811

529

607

14,665

16,599

14,000

14,700

15,435

16,207

17,017

Profit/(loss) on financial instruments

519,988

(64,553)

(1,398,436)

(2,483,773)

2,001,602

(803,715)

(1,022,696)

(1,749,689)

(629,959)

(635,019)

Realised gain/(loss) on investments

(1,074)

(405)

942

5,287

(2,800)

0

0

0

0

0

Adjusted EBITDA

12,993

11,171

22,113

121,059

(6,521)

31,844

41,108

65,076

72,927

75,797

EBIT

523,347

(62,382)

(1,392,810)

(2,415,125)

506,719

19,541

27,533

49,396

57,161

59,523

Finance income

693

931

3,793

10,905

12,964

9,093

10,527

12,632

12,717

13,226

Finance expense

(148)

(404)

(1,191)

(7,045)

(6,373)

(5,538)

(7,137)

(7,546)

(7,598)

(8,728)

Pre-tax profit

523,892

(61,855)

(1,390,208)

(2,411,265)

513,310

23,095

30,923

54,481

62,281

64,021

Income taxes

(230)

(269)

(401)

(1,056)

(500)

(443)

(568)

(920)

(1,028)

(1,059)

Net income

523,662

(62,124)

(1,390,610)

(2,412,322)

512,810

22,652

30,355

53,562

61,253

62,962

Total comprehensive income

14,407

8,914

18,419

113,443

3,046

17,394

30,355

53,562

61,253

62,962

Adjusted EPS (diluted, £)*

N/A

N/A

0.28

1.62

0.04

0.26

0.45

0.79

0.90

0.92

DPS (£)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Balance Sheet

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

214

376

223

510

1,936

1,200

534

(61)

(583)

(1,028)

Digital assets

N/A

N/A

N/A

N/A

112

112

112

112

112

112

Intangible assets

0

7

20

19,781

11,992

11,119

10,246

9,373

8,500

7,627

Investments

6,158

5,585

3,626

24,501

45,020

44,389

44,389

44,389

44,389

44,389

Long term receivables and other

15

323

329

581

1,360

1,360

1,360

1,360

1,360

1,360

Non-current assets

6,387

6,290

4,199

45,372

60,420

58,180

56,641

55,173

53,779

52,460

Trade and other receivables

9,350

27,011

62,274

1,075,971

199,045

540,479

739,466

1,073,650

1,229,584

1,416,763

Digital assets

217,521

427,524

1,826,695

2,736,481

868,944

1,505,838

2,268,180

3,649,609

4,174,710

4,850,721

Cash at bank

32,897

2,350

2,266

11,088

26,565

16,952

32,710

48,460

99,242

164,837

Amounts due from brokers

N/A

39,405

66,518

118,976

233,507

179,772

269,113

440,300

505,801

590,422

Current assets

259,767

496,290

1,957,752

3,942,516

1,328,061

2,243,041

3,309,469

5,212,019

6,009,338

7,022,743

Total assets

266,154

502,580

1,961,951

3,987,888

1,388,480

2,301,221

3,366,110

5,267,192

6,063,116

7,075,203

Share capital

2,214

2,215

31

34

34

34

34

34

34

34

Share premium

111

111

2,387

30,781

30,781

30,781

30,781

30,781

30,781

30,781

Other reserves

104,322

168,813

1,209,630

667,846

(22,500)

(27,758)

(27,758)

(27,758)

(27,758)

(27,758)

Retained earnings

(68,003)

(125,795)

(1,155,551)

(497,727)

195,644

218,296

248,651

302,213

363,466

426,428

Total equity

38,644

45,343

56,497

200,934

203,959

221,353

251,708

305,270

366,523

429,485

Trade payables and other liabilities

227,469

419,340

1,792,936

3,491,612

1,025,734

1,878,051

2,902,347

4,748,577

5,454,992

6,367,612

Amounts due to brokers

N/A

37,631

112,121

292,708

135,385

178,415

188,653

189,943

218,200

254,704

Lease liabilities

0

0

0

0

581

581

581

581

581

581

Current tax liabilities

42

266

398

2,635

236

236

236

236

236

236

Current liabilities

227,510

457,237

1,905,454

3,786,955

1,161,937

2,057,283

3,091,817

4,939,338

5,674,009

6,623,134

Non-current liabilities

0

0

0

0

22,584

22,584

22,584

22,584

22,584

22,584

Total equity and liabilities

266,154

502,580

1,961,951

3,987,888

1,388,480

2,301,221

3,366,110

5,267,192

6,063,116

7,075,203

Ratios

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

52.1%

54.0%

62.8%

85.3%

-19.1%

49.9%

52.3%

58.1%

57.2%

55.6%

Adjusted net margin

59.4%

38.4%

47.6%

79.9%

8.9%

27.3%

38.6%

47.8%

48.0%

46.2%

Source: Company data, Edison Investment Research. Note: *Total comprehensive income per share.


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This report has been commissioned by CoinShares International and prepared and issued by Edison, in consideration of a fee payable by CoinShares International. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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