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Research: Financials
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.
CoinShares International |
Q224 results shaped by two one-time events |
Q224 results |
Financials |
23 August 2024 |
Share price performance
Business description
Next events
Analyst
CoinShares International is a research client of Edison Investment Research Limited |
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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 |
Revenue |
Other gains and |
Adjusted EBITDA* (£m) |
Adjusted EPS (£) |
DPS |
P/E |
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 |
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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Research: Healthcare
SIGA Technologies announced another contract win with the US Department of Defense (DoD), which is for the procurement of c $9m in TPOXX. This is the third DoD contract win in roughly three years for a total of approximately $28m and adds to the already robust H224 orderbook of c $154m of outstanding TPOXX orders, following the July 2024 $112.5m option exercise from the Biomedical Advanced Research and Development Authority (BARDA) for oral TPOXX. While delivery timeline details are yet to be disclosed, we expect this new DoD order to at least start being partially serviced in FY25. The DoD has also provided $27m in R&D support to the post-exposure prophylaxis (PEP) development effort, for which the regulatory filing is planned within the next 12 months.