Summary The company announced a weak Q3:22. However, Netcoins has significantly outperformed during November 2022, post the FTX collapse, with a 20% increase in its daily revenue. We decrease our price target to U.S.$0.35 (earlier U.S.$0.50) and reiterate our Buy rating. Singular Research Quarterly Summary – Q3:22 BIGG Digital (BBKCF) revenues down 42% vs. prior year to C$1.5 million versus C$2.6 million in Q3:21. The decrease was driven primarily by weakness in the Netcoins segment (down 54% YOY), partially offset by a strong performance in the Blockchain Intelligence Group ((BTGI)) segment (up 22% YOY). Netcoins revenue was C$1.0 million in Q3:22, down 54% YOY and down 43% QoQ due to the reduced trading volumes within the crypto market and lower cryptocurrency prices. However, Netcoins has significantly outperformed during November 2022, post the FTX collapse, with a 20% increase in its daily revenue. We believe this suggests that investors prefer fully regulated cryptocurrency exchange for their trading. Gross margin on Netcoins volume remained strong at 1.38% in Q3:22 (Q3:21 – 1.32%). Netcoins user base grew 5% QOQ in Q3:22. As of the end of September 2022, the total user base was 176k. Total ad spend decreased to C$0.46 million in Q3:22, compared to C$1.2 million in Q3:21. Customer acquisition costs remained in excess of $50 per user. Operating expenses were C$4.7 million for Q3:22, compared to C$6.3 million in Q3:21. The decrease was driven by lower advertising and promotion costs and a decrease in share-based compensation expenses. Net loss at C$(1.9) million in Q3:22, or C$(0.01) per diluted share, versus net income of C$1.0 million or C$0.00 per diluted share in Q3:21. Balance sheet . Cash and cryptocurrency in treasury (excluding restricted cash and customer deposits) equaled ~C$19.2 million as of September 30, 2022. In addition, BIGG also holds a C$8.3M investment in metaverse company TerraZero and a C$1.9M investment in Bitcoin mining company Luxxfolio. BIGG owns 250 Bitcoin, valued at approximately C$5.5 million. The company has no debt. Netcoins launched in the U.S. Subsequent to Q3:22, Netcoins launched its operations in the U.S. initially in five states - California, Pennsylvania, Michigan, Virginia, and Missouri. The Company will then expand to additional states in H1:23. Valuation We value BBKCF using a blend of peer multiples and a DCF methodology. BBKCF’s valuation is challenging given its early stage and the limited number of publicly traded pure-play cryptocurrency companies. We believe the companies in the table below are the most relevant publicly traded peers for valuing BBKCF. We value BBKCF at 2.0x FY:25 sales of U.S.$26.3 million, which is at a slight discount to Coinbase ( COIN ) (due to its large size) but at a premium to the other peer group given its strong growth prospects and the fact that it is one of only a handful of Canada-based crypto trading platform to be fully regulated and publicly traded. In our view, investing in regulated trading platforms offers a lower-risk method of participating in the crypto economy versus investing directly in underlying cryptos. We discount the target price back at our computed cost of capital of 12.4%. We arrive at a peer group multiple-based target price of U.S.$0.19, which we discount back to U.S.$0.15. We weight the other 50% of our target using our Discounted Cash Flow target. Our DCF model uses our forecasted free cash flow to the firm over the first five years and then grows EBIT at a 20% rate over years six to eight and at 3% thereafter. We apply a weighted average cost of capital of 12.4%. Our DCF produces a value of U.S.$ 0.53 (or C$0.73). The combination of U.S.$0.15 at 50% and U.S.$0.53 at 50% results in a weighted average price target of U.S.$0.34, which we round up to U.S.$0.35 (or C$0.48). The exhibit below summarizes our peer group multiples. Bigg Digital Assets and Singular Research
