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Currency in SEK
Last close As at 09/06/2023
SEK34.75
▲ 1.05 (3.12%)
Market capitalisation
SEK2,368m
Research: Financials
CoinShares International (CS) posted Q322 EBITDA of £6.4m vs £26.1m in Q321 as asset prices, trading volumes and volatility in digital asset markets remained subdued amid a persistent ‘crypto winter’. Having said that, the Q322 profit shows that CS can be profitable even in an adverse market environment. CS reported £4.5m in gains and income in its capital market infrastructure operations. Total comprehensive income of £20.0m (Q321: £26.2m) was assisted by FX gains on consolidation from a higher US$/£ rate. More recently however, the digital assets market has been shaken by the collapse of FTX and Alameda Research.
CoinShares International |
Q322 profitable, FTX impact manageable |
Q322 results |
Financials |
17 November 2022 |
Share price performance
Business description
Next events
Analyst
CoinShares International is a research client of Edison Investment Research Limited |
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CoinShares International (CS) posted Q322 EBITDA of £6.4m vs £26.1m in Q321 as asset prices, trading volumes and volatility in digital asset markets remained subdued amid a persistent ‘crypto winter’. Having said that, the Q322 profit shows that CS can be profitable even in an adverse market environment. CS reported £4.5m in gains and income in its capital market infrastructure operations. Total comprehensive income of £20.0m (Q321: £26.2m) was assisted by FX gains on consolidation from a higher US$/£ rate. More recently however, the digital assets market has been shaken by the collapse of FTX and Alameda Research.
Year end |
Revenue (£m) |
Adjusted |
Adjusted |
DPS |
P/E |
Yield |
12/20 |
18.4 |
22.1 |
0.28 |
0.00 |
7.4 |
N/A |
12/21 |
80.9 |
121.7 |
1.64 |
0.00 |
1.3 |
N/A |
12/22e |
51.1 |
(6.5) |
0.32 |
0.00 |
6.5 |
0.0 |
12/23e |
39.0 |
20.3 |
0.13 |
0.00 |
15.7 |
0.0 |
Note: *Sum of revenue, income and gains from capital markets infrastructure and gains on principal investments less administrative expenses excluding D&A. **Total comprehensive income per share attributable to the shareholders of the parent.
CoinShares Physical inflows steady
CS’s asset management revenue came in at £10.1m in Q322 (versus £14.2m in Q222 and £18.4m in Q321) and its assets under management were £2.02bn at end-September 2022 (60% in the legacy XBT Provider products, 30% in the BLOCK index (ie equities platform) and 10% in CoinShares Physical) versus £1.66bn at end-June 2022 and £4.18bn at end-2021. Importantly, moderate net inflows (excluding seed assets) into CoinShares Physical products continued, reaching £127m year to date (of which c £22m was in Q322), suggesting steady interest in its institutional-grade exchange traded products (ETPs). Management highlighted that CoinShares Physical was the leader in bitcoin (BTC) and Ether (ETH) net inflows in Q322 across Europe. CS launched one new product during the quarter, the CoinShares Physical Staked Algorand ETP.
XBT Provider outflows moderating
Meanwhile, net outflows from legacy products slowed down markedly to US$9m in Q322 (versus US$132m in Q222 and US$246m in Q122), with the number of individual holders at 77,000 versus c 72,000 at the time of the Q321 results release. This may suggest diminishing volumes of profit realisations from earlier unit holders who bought before 2021, coupled with interest from new retail investors. The BLOCK index saw only minor net outflows of US$2.6m in Q322 (after net inflows of US$35m in H122).
Valuation: Reduced to reflect FTX/Alameda impact
CS’s total direct exposure to FTX is US$30.3m (none to Alameda Research), which we conservatively assume will be entirely lost and reflected this in our CS valuation. Coupled with more muted CSCM gains/income forecasts, this translates into a CS fair value of SEK70.0 per share (down from SEK80.0 previously).
CSCM with moderate gains/income in Q322
Despite limited arbitrage opportunities and low volumes in the crypto markets, which led to muted activity in terms of delta neutral strategies and liquidity provisioning, its capital markets infrastructure arm, CoinShares Capital Markets (CSCM) generated gains and income of £4.5m in Q322 (vs £8.4m in Q321). This was assisted in particular by decentralised finance (DeFi) activities (£1.5m) and fixed income operations (£1.2m). However, we note that the company has been unwinding its DeFi positions in recent months (as yields declined while counterparty risk increased across the sector), with a mere £25.2m balance left in DeFi activities at end-September 2022.
Management highlighted that the company’s proprietary trading became more active towards the end of August and into September, including the deployment of trading strategies around the Ethereum Merge to capture the value of the forked token (ETHPoW) and the basis on long futures positions. This was partly offset by expenses related to CS’s increased use of futures to hedge its XBT Provider exposure (encouraged by low funding rates), with cash freed up in the process being deployed to generate a yield.
Exhibit 1: Q322 results highlights
£m, unless otherwise stated |
Q322 |
Q222 |
Q122 |
Q421 |
Q321 |
Revenue, of which: |
10.8 |
13.9 |
18.0 |
25.8 |
18.4 |
XBT Provider |
9.1 |
13.0 |
16.3 |
24.4 |
17.5 |
CoinShares Physical |
0.6 |
0.6 |
0.4 |
0.5 |
0.2 |
Equities platform |
0.4 |
0.6 |
0.5 |
0.6 |
0.6 |
B2C* |
0.3 |
(0.1) |
0.7 |
0.3 |
- |
Capital market infrastructure income/gains, of which: |
4.5 |
(11.4) |
10.2 |
16.2 |
8.4 |
Liquidity provisioning |
0.4 |
1.6 |
2.0 |
2.4 |
1.7 |
Delta Neutral Trading Strategies |
0.3 |
(1.3) |
0.6 |
5.3 |
2.6 |
Fixed income activities |
1.2 |
0.8 |
1.2 |
3.5 |
3.1 |
DeFi |
1.5 |
4.9 |
6.3 |
3.6 |
- |
Other |
1.1 |
(17.5) |
0.2 |
1.5 |
1.0 |
Principal investment gains/(losses) |
(0.1) |
(5.1) |
(0.1) |
0.7 |
4.8 |
Adjusted administrative expenses |
(8.3) |
(5.8) |
(9.2) |
(10.0) |
(5.7) |
Adjusted EBITDA |
6.4 |
(8.2) |
18.7 |
32.9 |
26.1 |
Adjusted EBITDA margin (%) |
42.5 |
N/A |
66.9 |
77.0 |
82.0 |
Depreciation and amortisation |
(0.8) |
(0.7) |
(0.6) |
(0.5) |
(0.6) |
Finance expense |
(0.9) |
(2.4) |
(2.2) |
(2.9) |
(1.5) |
Income taxes |
(0.3) |
(0.1) |
0.1 |
0.3 |
(0.4) |
Currency translation differences |
15.5 |
11.3 |
4.1 |
(0.4) |
2.6 |
Total comprehensive income |
20.0 |
(0.1) |
20.2 |
29.5 |
26.2 |
Source: Company data. Note: *Acquired in December 2021.
FTX/Alameda Research collapse will have significant ramifications for the crypto markets
Until recently FTX was one of the top centralised crypto exchanges globally, while Alameda Research was one of the largest principal trading businesses and market makers in the digital assets space. Both businesses were founded by Sam Bankman-Fried (SBF), one of the key figures in the crypto space in recent years. Last week, both FTX and Alameda Research filed for Chapter 11 bankruptcy after FTX suspended withdrawals on 8 November amid an apparent liquidity crunch. Moreover, FTX announced that it had suffered from a hack soon after filing for bankruptcy.
CS recently announced its total direct exposure to FTX is US$30.3m (c £26.6m), while having no exposure to Alameda Research. We conservatively assume all these funds will be lost (even though it is possible that some part will eventually be recovered) and thus reduce our assumptions in terms of CS’s resources available for its capital markets infrastructure operations. Importantly, the FTX exposure is entirely attributable to CS’s proprietary assets, which means that XBT Provider and CoinShares Physical noteholders remain unaffected by the FTX collapse. CS continues to provide real-time attestations of the assets backing these products in partnership with Armanino.
Beyond the direct loss from holding assets on the FTX exchange, CS may be affected by the consequences of this high-profile failure of top players for the entire digital assets industry. It is likely to trigger an even greater trust crisis than the bankruptcy of Three Arrows Capital, Voyager Digital and Celsius, as well as the UST/Luna collapse earlier this year. It may also result in a liquidity crunch and bankruptcies of other industry participants with high exposure to FTX and/or Alameda Research. All this could delay broader digital assets adoption (limiting near-term ETP inflows) and result in CS’s even greater cautiousness in its CSCM operations (limiting potential gains and income).
In response to the recent announcement by Genesis Global Capital (the lending arm of Genesis Global Trading) that it is temporarily suspending redemptions and new loan originations following FTX’s collapse, CS confirmed that it has no exposure to Genesis at present.
CS’s capital position remains robust
As at end-September 2022, CS had a net amount due from brokers of £70.1m at end-September 2022 versus £38.1m net due from brokers at end-June 2022 and £205.2m net due to brokers at end-March 2022. The more muted activity within its capital markets infrastructure business meant that CS significantly reduced the utilisation of its credit lines with brokers, which resulted in a lower interest expense. However, these credit facilities remain available and can be drawn by CS as new trading opportunities arise. CS also had cash at bank of £12.4m at end-Q322. Finally, we estimate that its accrued management fees related to XBT Provider (which will be released in cash to CS once investors redeem their units) stood at c £165m at end-September 2022. Given the above and its total equity of £240.6m as at end-September 2022, we believe CS’s balance sheet is in a good position, even after accounting for the potential US$30.3m loss arising from the FTX exposure.
Forecast revisions
While it is yet to be seen how CS will account for its FTX exposure, we assume that the entire £26.6m exposure will be written down in Q422 (with the loss reflected in ‘other’ capital market infrastructure income/gains, see Exhibit 2). Moreover, we reduce our CSCM income/gains forecasts for the following years to reflect a more cautious approach of CS, as well as the more limited capital available for trading. On the other hand, we have raised our management fee assumptions for XBT Provider fees due to the recent limited net outflows.
Exhibit 2: Summary of forecast revisions
|
FY21 |
FY22e |
FY23e |
FY24e |
FY25e |
||||||||
|
Actual |
Old |
New |
diff (%) |
Old |
New |
diff (%) |
Old |
New |
diff (%) |
Old |
New |
diff (%) |
Revenue, of which: |
80.9 |
49.3 |
51.1 |
3.7 |
36.1 |
39.0 |
8.1 |
49.1 |
53.5 |
9.0 |
73.2 |
83.8 |
14.5 |
XBT Provider |
78.5 |
43.1 |
45.0 |
4.4 |
25.2 |
28.2 |
12.1 |
30.5 |
34.8 |
14.1 |
37.0 |
46.2 |
24.9 |
CoinShares Physical & other * |
0.9 |
3.0 |
3.0 |
(0.8) |
7.6 |
7.3 |
(3.7) |
14.3 |
14.2 |
(0.7) |
30.9 |
32.1 |
3.8 |
Block index |
1.2 |
1.9 |
1.9 |
(1.1) |
1.9 |
2.0 |
5.6 |
2.5 |
2.7 |
5.6 |
3.0 |
3.2 |
5.6 |
B2C |
0.3 |
1.2 |
1.2 |
(4.0) |
1.4 |
1.5 |
2.9 |
1.8 |
1.8 |
2.9 |
2.3 |
2.4 |
2.9 |
Capital market infrastructure income/gains, of which: |
62.1 |
6.2 |
(20.2) |
(426.6) |
35.9 |
22.7 |
(36.9) |
44.0 |
31.3 |
(29.0) |
54.9 |
43.6 |
(20.5) |
Liquidity provisioning |
13.8 |
6.6 |
5.1 |
(22.5) |
5.5 |
4.7 |
(15.3) |
5.7 |
5.9 |
5.2 |
4.6 |
5.5 |
19.5 |
Delta Neutral Trading Strategies |
27.2 |
0.5 |
0.9 |
69.5 |
16.0 |
8.4 |
(47.6) |
21.7 |
12.5 |
(42.2) |
30.7 |
19.9 |
(35.3) |
Fixed income activities |
10.9 |
2.5 |
3.7 |
46.5 |
2.5 |
3.7 |
46.5 |
2.5 |
3.7 |
46.5 |
2.6 |
3.8 |
46.5 |
DeFi |
3.6 |
13.9 |
13.0 |
(6.6) |
11.5 |
4.5 |
(61.0) |
13.8 |
7.6 |
(44.8) |
16.6 |
13.0 |
(21.7) |
Other |
6.6 |
(17.4) |
(42.9) |
NM |
0.3 |
1.4 |
320.4 |
0.3 |
1.4 |
320.4 |
0.3 |
1.5 |
320.4 |
Principal investment gains/(losses) |
9.6 |
(5.3) |
(5.6) |
NM |
0.0 |
0.0 |
N/A |
0.0 |
0.0 |
N/A |
0.0 |
0.0 |
N/A |
Administrative expenses excl. D&A |
(31.1) |
(30.3) |
(31.5) |
4.0 |
(40.2) |
(41.0) |
2.2 |
(46.8) |
(49.2) |
5.0 |
(55.0) |
(58.3) |
6.0 |
Adj. EBITDA |
121.7 |
20.0 |
(6.5) |
NM |
31.5 |
20.3 |
(35.5) |
45.5 |
34.8 |
(23.5) |
71.3 |
67.3 |
(5.6) |
Total comprehensive income |
110.5 |
18.2 |
23.0 |
26.3 |
20.3 |
9.6 |
(53.0) |
33.7 |
22.1 |
(34.5) |
57.0 |
53.4 |
(6.2) |
Source: Company data, Edison Investment Research. Note: *Includes fees from CoinShares Physical, 3iQ and Invesco.
Exhibit 3: Financial summary
Year ending 31 December |
FY18 |
FY19 |
FY20 |
FY21 |
FY22e |
FY23e |
FY24e |
FY25e |
INCOME STATEMENT |
|
|
|
|
|
|
|
|
Revenues |
10,549 |
11,331 |
18,389 |
80,892 |
51,090 |
39,023 |
53,477 |
83,780 |
Administrative expenses |
(10,927) |
(9,284) |
(14,312) |
(32,167) |
(33,765) |
(43,266) |
(51,435) |
(60,520) |
Other operating income |
4,811 |
529 |
607 |
11,427 |
18,180 |
19,089 |
20,043 |
21,046 |
Profit/(loss) on financial instruments |
519,988 |
(64,553) |
(1,398,436) |
(2,236,196) |
1,857,710 |
(1,264,941) |
(828,117) |
(2,426,481) |
Realised gain/(loss) on investments |
(1,074) |
(405) |
942 |
5,287 |
(6,028) |
0 |
0 |
0 |
Adjusted EBITDA |
12,993 |
11,171 |
22,113 |
121,688 |
(6,472) |
20,319 |
34,764 |
67,298 |
EBIT |
523,347 |
(62,382) |
(1,392,810) |
(2,170,757) |
(13,331) |
12,584 |
25,732 |
56,089 |
Finance income |
693 |
931 |
3,793 |
10,905 |
11,386 |
5,490 |
6,786 |
8,963 |
Finance expense |
(148) |
(404) |
(1,191) |
(6,810) |
(6,612) |
(8,522) |
(10,431) |
(11,636) |
Pre-tax profit |
523,892 |
(61,855) |
(1,390,208) |
(2,166,662) |
(8,557) |
9,553 |
22,087 |
53,417 |
Income taxes |
(230) |
(269) |
(401) |
(1,284) |
0 |
0 |
0 |
0 |
Net income |
523,662 |
(62,124) |
(1,390,610) |
(2,167,946) |
(8,557) |
9,553 |
22,087 |
53,417 |
Total comprehensive income |
14,407 |
8,914 |
18,419 |
114,346 |
22,953 |
9,553 |
22,087 |
53,417 |
Adjusted EPS (diluted, £)* |
N/A |
N/A |
0.28 |
1.64 |
0.32 |
0.13 |
0.31 |
0.74 |
DPS (£) |
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 |
510 |
577 |
714 |
922 |
Digital assets |
N/A |
N/A |
N/A |
N/A |
2,495 |
2,495 |
2,495 |
2,495 |
Intangible assets |
0 |
7 |
20 |
19,781 |
18,908 |
18,035 |
17,162 |
16,289 |
Investments |
6,158 |
5,585 |
3,626 |
24,501 |
41,304 |
41,304 |
41,304 |
41,304 |
Long term receivables and other |
15 |
323 |
329 |
581 |
1,360 |
1,360 |
1,360 |
1,360 |
Non-current assets |
6,387 |
6,290 |
4,199 |
45,372 |
64,577 |
63,772 |
63,035 |
62,371 |
Trade and other receivables |
9,350 |
27,011 |
62,274 |
1,075,971 |
438,965 |
760,790 |
963,430 |
1,628,161 |
Digital assets |
217,521 |
427,524 |
1,826,695 |
2,736,481 |
1,073,415 |
1,776,506 |
2,346,467 |
4,352,445 |
Cash at bank |
32,897 |
2,350 |
2,266 |
11,088 |
18,804 |
20,096 |
27,328 |
65,899 |
Amounts due from brokers |
N/A |
39,405 |
66,518 |
118,976 |
74,795 |
109,000 |
146,921 |
278,813 |
Current assets |
259,767 |
496,290 |
1,957,752 |
3,942,516 |
1,605,978 |
2,666,391 |
3,484,146 |
6,325,318 |
Total assets |
266,154 |
502,580 |
1,961,951 |
3,987,888 |
1,670,555 |
2,730,163 |
3,547,182 |
6,387,689 |
Share capital |
2,214 |
2,215 |
31 |
34 |
34 |
34 |
34 |
34 |
Share premium |
111 |
111 |
2,387 |
30,781 |
30,781 |
30,781 |
30,781 |
30,781 |
Other reserves |
104,322 |
168,813 |
1,209,630 |
667,846 |
699,356 |
699,356 |
699,356 |
699,356 |
Retained earnings |
(68,003) |
(125,795) |
(1,155,551) |
(497,727) |
(506,284) |
(496,731) |
(474,644) |
(421,227) |
Total equity |
38,644 |
45,343 |
56,497 |
200,934 |
223,887 |
233,440 |
255,527 |
308,944 |
Trade payables and other liabilities |
227,469 |
419,340 |
1,792,936 |
3,491,612 |
1,246,583 |
2,179,992 |
2,938,413 |
5,576,251 |
Amounts due to brokers |
N/A |
37,631 |
112,121 |
292,708 |
199,453 |
316,099 |
352,610 |
501,863 |
Lease liabilities |
0 |
0 |
0 |
0 |
632 |
632 |
632 |
632 |
Current tax liabilities |
42 |
266 |
398 |
2,635 |
0 |
0 |
0 |
0 |
Current liabilities |
227,510 |
457,237 |
1,905,454 |
3,786,955 |
1,446,668 |
2,496,724 |
3,291,655 |
6,078,746 |
Non-current liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Total equity and liabilities |
266,154 |
502,580 |
1,961,951 |
3,987,888 |
1,670,555 |
2,730,163 |
3,547,182 |
6,387,689 |
Ratios |
|
|
|
|
|
|
|
|
Adjusted EBITDA margin (%) |
52.1 |
54.0 |
62.8 |
85.1 |
(21.0) |
32.9 |
41.0 |
52.8 |
Adjusted net margin (%) |
59.4 |
38.4 |
47.6 |
80.0 |
74.3 |
15.5 |
26.1 |
41.9 |
Source: Company data, Edison Investment Research. Note: *Total comprehensive income per share.
|
|
Research: TMT
Datatec reported a mixed performance in H123: strong demand for cloud infrastructure, cybersecurity and networking solutions drove revenue and order growth, while supply chain issues continued to hamper the ability to deliver orders. Currency headwinds further impacted profitability, however, healthy order backlogs across all divisions should support better revenue growth in H223/FY24 as supply chain issues ease.
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