CoinShares International — Q224 results shaped by two one-time events

CoinShares International (OMX: CS)

Last close As at 10/10/2024

67.00

1.00 (1.52%)

Market capitalisation

4,533m

More on this equity

Research: Financials

CoinShares International — Q224 results shaped by two one-time events

CoinShares International (CS) posted a strong adjusted EBITDA in Q224 of £26.6m (vs £11.4m in Q223), which included two one-off factors: the £21.8m full write-down of its holdings in FlowBank and a £28.8m impairment reversal, following the successful sale of CS’s FTX claim. Management highlighted that CS’s operations have not been disrupted in any way by the recent turmoil across financial markets (including the digital assets market). CS recently paid the first two instalments of its £9.3m dividend (£0.13 per share) from FY23 earnings, with the full-year payment now implying a c 2.6% dividend yield. Furthermore, it declared a special dividend of US$31.4m (c £24.3m), representing 86% of the consideration it received for the FTX claim, to be paid in October 2024.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Financials

CoinShares International

Q224 results shaped by two one-time events

Q224 results

Financials

23 August 2024

Price

SEK66.00

Market cap

SEK4,465m

SEK13.4206/£

US$1.3081/£

Total equity at end-Q224

£290.5m

Shares in issue

67.7m

Free float

49.7%

Code

CS

Primary exchange

Nasdaq Stockholm

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

10.6

0.0

29.9

Rel (local)

12.9

2.3

5.3

52-week high/low

SEK71.50

SEK37.00

Business description

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

Next events

Dividend payment

3 October 2024

Q324 results

12 November 2024

Analyst

Milosz Papst

+44 (0)20 3077 5700

CoinShares International is a research client of Edison Investment Research Limited

CoinShares International (CS) posted a strong adjusted EBITDA in Q224 of £26.6m (vs £11.4m in Q223), which included two one-off factors: the £21.8m full write-down of its holdings in FlowBank and a £28.8m impairment reversal, following the successful sale of CS’s FTX claim. Management highlighted that CS’s operations have not been disrupted in any way by the recent turmoil across financial markets (including the digital assets market). CS recently paid the first two instalments of its £9.3m dividend (£0.13 per share) from FY23 earnings, with the full-year payment now implying a c 2.6% dividend yield. Furthermore, it declared a special dividend of US$31.4m (c £24.3m), representing 86% of the consideration it received for the FTX claim, to be paid in October 2024.

Year
end

Revenue
(£m)

Other gains and
income (£m)

Adjusted EBITDA* (£m)

Adjusted EPS (£)

DPS
(£)

P/E
(x)

Yield
(%)

12/22

51.3

(19.6)

(6.8)

0.04

0.00

106.2

N/A

12/23

43.1

42.3

57.3

0.54

0.13**

7.6

3.1

12/24e

79.3

62.8

99.3

1.32

0.28

3.0

7.0

12/25e

87.7

52.9

90.4

1.28

0.27

5.0

4.3

Note: *Sum of revenue, other gains and income (income and gains from capital markets infrastructure and gains on principal investments) less cost of sales and administrative expenses excluding D&A. **Excluding the US$31.4m special dividend.

Diversification of income streams continues

CS continues to gradually diversify its asset management business away from its legacy CoinShares XBT Provider products (which contributed c 79% of the £22.5m asset management revenue in Q224), as they saw further net outflows of US$131m in Q224. This was coupled with net inflows into CoinShares Physical and Valkyrie Funds products, and the recent introduction of staking rewards on the CoinShares Physical Staked Ethereum exchange-traded product (ETP). Meanwhile, the capital markets infrastructure (CSCM) division continues to generate substantial gains and income (£11.2m excluding impairment reversal in Q224).

Further steps on the way to mainstream adoption

We see continued signs of digital assets adoption by the mainstream financial community, as illustrated by the approvals of spot Bitcoin and Ethereum exchange-traded funds (ETFs) in the US and Hong Kong this year. Legislative progress is also being made, as seen through the Markets in Crypto-Assets (MiCA) regulation, which has come into force in the EU with a phased approach from 30 June 2024, and through the US House of Representatives’ approval of the Financial Innovation and Technology for the 21st Century (FIT21) act in May 2024 (yet to pass the US Senate).

Valuation: Upside remains sizeable at 27%

Assuming continued digital asset adoption, we value CS at SEK83.5 per share (down from SEK88.0 previously) primarily due to lower Ether (ETH) price assumptions, which also affected our staking income forecast. Using a more cautious scenario with digital asset price growth at only 2% pa from the current spot levels, we value CS at SEK40.0 per share (down from SEK57.5 previously).

Robust underlying earnings growth in Q224

CS’s adjusted EBITDA provides a clearer view of its performance as it takes all fair value gains/losses on digital assets through CS’s statement of comprehensive income rather than the P&L. Adjusted EBITDA stood at £26.6m in Q224 (vs £11.4m in Q223) and includes two one-off, offsetting items. The company has booked a £21.8m full write-down of its 26.75% stake in FlowBank, a Swiss-based online neobank (CS’s largest holding in its principal investments portfolio), in response to the opening of bankruptcy proceedings by FINMA (the Swiss financial markets regulator) on 13 June 2024. FINMA’s move was due to the bank no longer meeting the minimum capital requirements for its business operations, and in light of concerns that the bank may be over-indebted. This was, however, more than offset by the successful sale of CS’s claim related to the bankrupt digital assets exchange FTX at US$36.4m, which represents a 116% recovery rate net of broker fees. As the claim had been fully written off in Q422, it resulted in a £28.8m impairment reversal in Q224, recognised in the CSCM division. Therefore, CS’s decision to hold on to the claim rather than selling it soon after the FTX collapse proved to be the right one. CS decided to pay a special dividend on the back of the transaction, amounting to US$31.4m (or 86% of the funds it received), which will be distributed with the next regular dividend payment on 3 October 2024. The company maintained a healthy EBITDA margin, which, adjusted for the above-mentioned one-off items, stood at 64% in Q224 (vs 60% in Q223).

Exhibit 1: Q224 and H124 results highlights

£m, unless otherwise stated

Q224

Q223

change y-o-y

H124

H123

change y-o-y

Revenue, of which:

22.5

10.7

110.1%

42.0

20.1

109.4%

XBT Provider

17.7

9.8

81.9%

33.5

18.1

85.0%

CoinShares Physical

3.7

0.5

655.4%

7.0

1.0

569.8%

Equities platform

0.5

0.3

38.2%

0.9

0.7

29.0%

Valkyrie

0.4

-

N/A

0.5

-

N/A

Other

0.1

0.1

-36.6%

0.1

0.2

-70.6%

Capital market infrastructure income/gains, of which:

40.0

8.5

368.7%

57.3

13.5

325.2%

Liquidity provisioning

0.9

0.2

385.6%

3.7

0.9

322.7%

Delta Neutral Trading Strategies

5.6

2.0

186.8%

6.2

3.3

85.7%

Fixed income activities

2.1

1.6

34.0%

4.3

2.1

111.1%

Staking

6.1

6.0

3.3%

12.0

9.0

34.1%

Other

25.3*

(1.1)

N/A

31.1*

(1.8)

N/A

Principal investment gains/(losses)

(24.8)

(0.2)

N/A

(17.7)

(0.8)

N/A

Cost of sales

(2.3)

(1.3)

71.2%

(5.4)

(2.7)

98.8%

Administrative expenses excluding D&A

(8.7)

(6.2)

41.7%

(15.4)

(11.7)

31.6%

Adjusted EBITDA

26.6

11.4

133.1%

60.8

18.1

235.7%

Adjusted EBITDA margin

64%**

60%

400bp

72%**

56%

1600bp

Depreciation and amortisation

(0.6)

(1.1)

-47.4%

(1.2)

(1.9)

-36.4%

Finance expense

(2.8)

(1.5)

82.7%

(5.5)

(2.8)

93.5%

Income taxes

(0.3)

(0.1)

191.9%

(0.5)

(0.2)

95.7%

Net income

22.9

8.6

164.9%

53.7

13.2

307.8%

Currency translation differences

0.6

(4.8)

N/A

1.7

(8.1)

N/A

Total comprehensive income

23.5

3.9

506.6%

55.4

5.0

997.2%

Source: CoinShares International data. Note: *Includes an impairment reversal of CS’s FTX claim of £28.8m. **Underlying margin excluding the FlowBank impairment and reversal of the FTX claim impairment.

CoinShares Physical and Valkyrie attracting net inflows in Q224

CS’s total assets under management (AUM) fell to £4.19bn at end-June 2024 from £4.77bn at end-March 2024, primarily driven by the price declines in digital assets and blockchain equities during the quarter. We calculate that net outflows across CS’s product suite amounted to around US$50–60m in Q224, which is mostly due to the continued net outflows of US$131m from its legacy products, CoinShares XBT Provider. This was partly offset by US$67m net inflows into the CoinShares Physical platform, most notably the Bitcoin ETP, which saw US$55m of net inflows (likely supported by the recent reduction in management fee from 0.98% to 0.35%). The CoinShares Physical Staked Ethereum ETP saw US$15m in net outflows in Q224, a trend seen across most ETP issuers in Europe, according to CS’s management. CS’s equities platform (BLOCK index) saw US$42.5m of net outflows, according to Bloomberg data, while the Valkyrie spot Bitcoin ETF and the Valkyrie Bitcoin Miners ETF attracted net inflows of US$44m and US$14m, respectively. CS management highlighted that the business integration of Valkyrie Funds is largely completed, with the focus in Q224 on intensifying Valkyrie’s product development, as well as a marketing and distribution strategy to promote CS’s brand and Valkyrie’s US products (see our previous note for product details).

Exhibit 2: CS’s assets under management

Source: CoinShares International data

Strong contribution from staking and delta-neutral strategies

CSCM gains and income in Q224 (excluding the one-off impairment reversal discussed above) stood at a solid £11.2m (vs £8.5m in Q223). This included £6.1m of staking income in the quarter (slightly up vs c £6.0m in Q223), as the decline in ETH staking yield (as measured by CoinDesk’s Composite Ether Staking Rate) from c 4.8% at end-June 2023 to c 3.1% at end-June 2024 (driven by the growing proportion of ETH staked across the network, among others) was offset by the increase in the ETH price from c US$1,930 at end-June 2023 to c US$3,400 at end-June 2024. Moreover, CS posted a £5.6m gain on its delta neutral strategies (which benefited from recently deployed new strategies) and £0.9m from liquidity provisioning activities related to its CoinShares XBT Provider products. A further £2.1m came from digital asset lending to a narrow group of counterparties CS considered high quality. CS also recognised a £3.5m loss from FX and other. With respect to CS’s recently launched Hedge Fund Solutions business, the short volatility strategies performed within risk tolerance but did not outperform the underlying assets in the quarter. Management highlighted that CS’s engineering and quant team recently delivered to production a significant new trade execution and risk platform (MATRIX), bringing a range of benefits (eg in cash and margin management).

Exhibit 3: CS’s capital markets infrastructure income and gains (£m)

Source: CoinShares International data. Note: Q422 was affected by the FTX claim impairment, which was subsequently reversed in Q224, as discussed above.

Forecast and valuation revisions

We have raised our FY24 adjusted EBITDA forecast by 19% to £99.3m on the back of the successful sale of the FTX claim. However, we have reduced our FY25 and FY26 forecasts by 9% and 5%, respectively, mostly because of lower ETH price assumptions (which also had a negative impact on our FY24 forecast) on the back of the recent price decline, and slightly higher forecasts for operating expenses. We have factored in an ETH price of US$3,550 at end-2024, followed by c US$5,450 at end-2025 and c US$6,700 at end-2026. We believe that the ETH price should be assisted by the launch of the spot Ethereum ETFs in the US on 23 July 2024, even if their start was muted, as net inflows into new products were more than offset by net outflows from Grayscale Ethereum Trust, which was converted into a spot Ethereum ETF (similar to the outflows seen initially for the Grayscale Bitcoin Trust upon conversion into a spot Bitcoin ETF), resulting in overall net outflows. We have reduced our fair value estimate by 7% to SEK83.5/share, which still implies a c 27% upside potential to the current share price.

Exhibit 4: Summary of forecast revisions

£m, unless otherwise stated

FY24e

FY25e

FY26e

Old

New

diff (%)

Old

New

diff (%)

Old

New

diff (%)

Revenue, of which:

85.8

79.3

(7.6)

91.4

87.7

(4.1)

95.9

94.2

(1.8)

XBT Provider

67.7

62.9

(7.2)

66.8

64.2

(3.9)

64.4

64.0

(0.7)

CoinShares Physical and other*

14.5

13.3

(8.6)

19.0

18.6

(2.1)

25.5

25.0

(2.0)

Block index

1.7

1.7

(0.4)

2.0

1.8

(11.4)

2.4

2.1

(11.4)

Valkyrie

1.2

1.0

(14.6)

2.2

1.7

(21.9)

2.8

2.3

(17.6)

Capital market infrastructure income/gains, of which:

54.1

82.4

52.5

55.6

52.9

(4.8)

51.5

51.1

(0.8)

Liquidity provisioning

6.9

5.4

(21.3)

5.6

5.8

2.7

5.5

5.1

(7.3)

Delta Neutral Trading Strategies

3.1

13.7

336.1

5.6

8.2

45.4

5.6

8.2

45.4

Fixed income activities

8.8

8.3

(5.5)

9.7

9.2

(5.5)

9.7

9.2

(5.5)

Staking/DeFi

29.4

23.9

(18.7)

34.6

29.7

(14.1)

30.7

28.6

(6.6)

Other

5.8

31.1

437.9

0.0

0.0

N/A

0.0

0.0

N/A

Principal investment gains/(losses)

(14.7)

(17.7)

20.4

0.0

0.0

N/A

0.0

0.0

N/A

Cost of sales/admin expenses excl. D&A

(41.0)

(44.3)

8.0

(46.4)

(48.8)

5.0

(49.6)

(51.9)

4.7

Adjusted EBITDA

83.6

99.3

18.9

99.1

90.4

(8.8)

97.0

92.6

(4.6)

Total comprehensive income

85.9

93.9

9.3

104.1

90.7

(12.9)

99.9

91.1

(8.8)

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

Exhibit 5: Financial summary

Year ending 31 December
(£’000s unless otherwise stated)

FY21

FY22

FY23

FY24e

FY25e

FY26e

Income statement

 

 

 

 

 

 

Revenues

80,755

51,337

43,083

79,336

87,689

94,181

Administrative expenses

(32,059)

(23,833)

(21,393)

(36,111)

(38,212)

(39,111)

Other operating income

14,665

16,627

2,323,447

24,409

24,897

25,395

Profit/(loss) on financial instruments

(2,483,773)

1,741,144

(1,281,647)

(1,442,341)

(1,138,504)

(1,061,156)

Realised gain/(loss) on investments

5,287

(4,950)

775

210

0

0

Adjusted EBITDA

121,059

(6,766)

57,267

99,344

90,416

92,571

EBIT

(2,415,125)

513,998

(455,875)

(884,522)

87,595

89,750

Finance income

10,905

12,917

10,224

8,979

10,831

10,522

Finance expense

(7,045)

(6,330)

(6,902)

(10,094)

(6,831)

(8,237)

Pre-tax profit

(2,411,265)

520,585

(452,553)

(878,972)

91,595

92,036

Income taxes

(1,056)

(369)

(574)

(913)

(882)

(887)

Net income

(2,412,322)

520,216

(453,126)

(879,885)

90,712

91,149

Total comprehensive income

113,443

2,934

38,396

93,859

90,712

91,149

Adjusted EPS (diluted, £)*

1.62

0.04

0.54

1.32

1.28

1.28

DPS (£)

0.00

0.00

0.13**

0.28

0.27

0.27

Balance sheet

 

 

 

 

 

 

Property, plant and equipment

836

1,936

3,066

2,557

2,190

1,896

Digital assets

2,689

112

1,332

1,332

1,332

1,332

Intangible assets

18,099

11,992

10,658

11,355

10,483

9,610

Investments

23,690

14,608

25,111

20,478

20,478

20,478

Investments in JVs and associates

N/A

30,404

19,813

0

0

0

Long term receivables

1,176

806

329

1,423

1,423

1,423

Other non-current assets

N/A

1,968

2,212

1,766

1,766

1,766

Non-current assets

46,489

61,826

62,520

38,911

37,671

36,504

Trade and other receivables

1,063,415

1,458

2,241

245,579

324,071

348,096

Digital assets

2,761,630

868,923

2,375,850

3,346,268

4,046,827

4,929,096

Cash at bank

10,776

26,568

6,661

28,919

32,967

56,786

Amounts due from brokers

118,976

98,129

16,271

39,394

47,498

56,409

Other current assets

N/A

187,638

268,670

699,954

804,948

845,195

Current assets

3,954,796

1,182,716

2,669,693

4,360,114

5,256,311

6,235,583

Total assets

4,001,285

1,244,541

2,732,213

4,399,025

5,293,982

6,272,086

Share capital

34

34

34

33

33

33

Share premium

30,781

30,781

30,691

30,529

30,529

30,529

Other reserves

(2,797,090)

22,136

454,110

1,037,033

1,037,033

1,037,033

Retained earnings

2,966,289

150,790

(245,590)

(772,322)

(700,544)

(627,573)

Total equity

200,013

203,741

239,245

295,274

367,051

440,023

Trade and other payables

3,505,675

3,970

5,612

9,585

9,585

9,585

Certificate liability

N/A

986,707

2,351,476

3,939,406

4,749,810

5,640,895

Amounts due to brokers

292,707

0

669

62,103

74,878

88,926

Lease liabilities

210

1,308

564

629

629

629

Current tax liabilities

2,578

236

157

299

299

299

Other current liabilities

N/A

27,117

108,941

70,000

70,000

70,000

Current liabilities

3,801,171

1,019,337

2,467,419

4,082,022

4,905,201

5,810,334

Non-current liabilities

101

21,463

25,549

21,730

21,730

21,730

Total equity and liabilities

4,001,285

1,244,541

2,732,213

4,399,025

5,293,982

6,272,086

Ratios

 

 

 

 

 

 

Adjusted EBITDA margin

79.7%

(9.4%)

66.9%

61.4%

64.3%

63.7%

Adjusted net margin

74.7%

4.1%

44.8%

58.0%

64.5%

62.8%

Source: Company accounts, Edison Investment Research. Note: *Total comprehensive income per share attributable to shareholders of the parent. **Excluding the US$31.4m special dividend


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United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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