Bitdeer Technologies: Undervalued Bitcoin Miner Deserves A Closer Look
Summary Bitdeer Technologies Group is one of the largest publicly traded Bitcoin mining companies with a total hash rate under management of 21.2 EH/s. The company reported its Q3 results with Bitcoin production up 121% y/y, while adjusted EBITDA surged by 222%. Following a sharp selloff in recent months, the stock appears undervalued relative to industry peers. We are bullish on Bitcoin and see Bitdeer as well-positioned to rally higher. Bitdeer Technologies Group ( BTDR ) is one of the world's largest publicly traded Bitcoin ( BTC-USD ) mining companies with a last reported hash rate of 21.2 EH/s between its self-mining operation and hosting services. That's an envious position considering the price of BTC has surged this year, currently trading above $40,000 and at the highest level since early 2022. That being said, shares of BTDR have disappointed, losing nearly a third of its value since the company's April SPAC merger IPO . One explanation for this apparent divergence compared to the strength of the broader crypto sector could be related to the end of the stock's six-month post-IPO lock-up timing assuming some early insiders have added to the selling pressure. Taking a closer look, we sense that this sharp selloff from Q2 highs is likely unjustified resulting in the stock becoming undervalued. While Bitcoin mining remains in a speculative corner of the market, Bitdeer is generating some impressive results we believe can continue. We are bullish on the stock and see room for shares to rally alongside the momentum in BTC. Data by YCharts BTDR Financials Recap BTDR reported a Q3 GAAP EPS loss of -$0.02, narrowing from -$0.20 in the period last year. More favorably, the adjusted profit of $10.5 million, reversed a loss of -$4.1 million in the period last year. Revenue of $87.3 million climbed by 14% year-over-year, reflecting a 64% increase in the total hash rate under management. The company mined 1,085 BTC in Q3 considering only the self-mining, more than double the 490 last year. source: company IR The reconciliation here considers what has been an ongoing shift in the business with self-mining playing a bigger role at the top line while the higher margin "cloud hash rate" service, has lost some momentum. In this case, the company offers a subscription plan where customers can contract the hash rate for a fee. The demand there has slowed with the climbing network difficulty essentially making the product less appealing relative to self-mining. The bigger takeaway is that Bitdeer has still managed to capitalize on the rising price of Bitcoin while expanding the overall operation. Q3 adjusted EBITDA at $28.0 million, climbed by 222% from $8.7 million in Q3 2022. source: company IR In terms of operational updates , the company's newest Bhutan-based "Gedu facility" with 100MW electrical capacity and 3.3EH/s hash rate went online in August. From the current 895MW of global data center electrical capacity, the plan is to reach 2,024MW by 2025 through the expansion of existing facilities in addition to building-out of a new location in the state of Ohio. For reference, Bitdeer's largest active site is the 563MW Rockdale, Texas facility. Notably, the company has announced it has been selected as a Preferred Cloud Service Provider by Nvidia Inc ( NVDA ) to utilize the latest DGX SuperPod with DGX H100 cloud systems for its cloud hash rate mining service in Asia through a new "Bitdeer AI cloud" initiative. The expectation here is that this could help revitalize that side of the business going forward while leveraging its existing infrastructure. source: company IR Finally, we can bring up Bitdeer's balance sheet as another strong point in the company's investment profile. The company ended Q3 with $134.5 million in cash against just $22.6 million in long-term debt. There is also an active $2.0 million share-repurchasing program authorized through April 2024. While this amount is marginal against the company's current $550 million market capitalization, we believe it serves as a signal to the board of directors' view that the stock is undervalued at the current level. Is BTDR Undervalued? We mentioned that Bitdeer is among the largest publicly traded commercial miners in the world by hash rate. That was a point reiterated by management citing its total hash rate capacity with data from Q2. The caveat here is that not all the Bitcoin mining companies are directly comparable. In the case of category leader Marathon Digital Inc ( MARA ), for example, the company's 23.1 EH/s hash rate is entirely directed at self-mining. Other companies like Riot Platforms Inc ( RIOT ) take a more vertically integrated approach and own the power infrastructure by generating electricity through company-owned power plants. These factors play into varying levels of earnings potential and growth outlook. The other consideration here is that Bitdeer is a Singapore-based company. While this is not necessarily a problem, it appears the market places a valuation premium on U.S. and Canadian-incorporated miners. source: company IR We bring all this up because the weakness in shares of Bitdeer, down by 60% in the last three months, has been something of a puzzle next to the stronger performance of these same Bitcoin mining peers. We speculated on the timing of the post-SPAC-merger IPO lock-up period. It could be related to the market's implicit verdict on Bitdeer's specific strategy. The truth is that there simply isn't one specific catalyst. What we do know is that the business and infrastructure are real, and the company is benefiting from the same climb in the price of Bitcoin as everyone else. Data by YCharts We can also say that BTDR is trading at a 1.2x EV to consensus 2023 revenue multiple is heavily discounted compared to the peer group that has an average multiple closer to 6x. source: yCharts That wide valuation spread also extends to the EV to forward EBITDA multiple where BTDR appears "cheap" trading at 4.3x compared to 11.5x for Bitfarms Inc ( BITF ) and particularly RIOT at 31x from this same measure. Again, there are many moving parts here, and we can cite reasons why some of these stocks are at a premium including their higher hash rate growth deployments. Nevertheless, we believe there is room for those valuation spreads to at least narrow. Data by YCharts BTDR Benefits As BTC Climbs The bullish case for Bitdeer is that the price of Bitcoin continues climbing, as a runway for its mining operation to grow profitably. We've been bullish on BTC with a view that the cryptocurrency has gained institutional acceptance as a credible and legitimate alternative asset that is here to stay. The capped supply of 21 million Bitcoin drives intrinsic value based on its scarcity. The setup now is an environment of building momentum capturing macro trends between a weakening U.S. Dollar, and the pullback in interest rates, with overall renewed bullish sentiment. source: finviz On the other hand, there are lingering uncertainties in this market that represent real risks. For Bitdeer as a mining company, an open question is how the operation will evolve beyond the looming Bitcoin halving set for Q2 2024, where the value of the Bitcoin network reward will essentially be cut in half. The company will need to at least double its production level through the addition of new hash rate capacity to maintain a level of implied revenue considering a constant price of BTC. It's also unclear how the network difficulty will progress through the halving which could introduce some volatility to results over the next several quarters. If anything, one criticism of Bitdeer is that the company may not be aggressive enough in its announced expansion plans. We can also cite the regulatory backdrop as a risk to consider. Bitdeer with its operations spanning three continents and multiple states in the U.S. is subject to different jurisdictions that may be less welcoming to Bitcoin mining in the future. There is also the possibility that the price of Bitcoin simply reverses lower for any number of reasons. Putting it all together, we believe the next big move for BTDR is higher. We rate BTDR as a buy on the basis that the stock appears underpriced relative to its industry peers and the extreme volatility in recent months was unjustified. Final Thoughts Bitdeer isn't perfect but we think there are enough strong points in its outlook and like the setup particularly considering the bullish trading action in the price of Bitcoin. Over the next few quarters, the monitoring points include the monthly production level updates while we also believe margins and cash flow trends should be closely followed. Seeking Alpha
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