Mini Boom soon? Maybe tommorrow?
https://thedeepdive.ca/galaxy-digital-bmo-initiates-with-43-price-target/ Galaxy Digital Holdings (TSX: GLXY), a hodgepodge of different crypto businesses under one company, just saw its third analyst initiation, with BMO giving the company a outperform rating and C$43 price target, or a 28% upside. This makes BMO’s price target the street high as the other two price targets sit at C$31 and C$25.
BMO calls Galaxy, “a technology-enabled financial services company bringing institutional-grade capital market services to the blockchain industry,” and believes it’s more than just another Bitcoin replacement in someone’s portfolio. They believe Galaxy offers an investment into the broader blockchain and digital asset industry. Further, they believe that the company is adequately diversified in their investments and businesses to mitigate any sort of company or cryptocurrency risks “at a stage in the industry’s evolution where it is difficult to predict winners and losers.”
On that point, BMO says as of the second quarter of 2021 Galaxy has $2.3 billion in investments, with 70% of that weighted to cryptocurrencies and 30% weighted to venture investments. Of the 70%, 30% is concentrated in Bitcoin while the rest is other cryptocurrencies. The other 30% of the $2.3 billion book is invested in 68 different companies.
As for the companies operating business, which provides capital markets services to institutional investors, which now has a >$100 million annual run rate, BMO believes it to be a stabilizer and will provide the company with income and a solid ROE if cryptocurrencies start to get rocky.
Next, BMO believes that the management team at Galaxy has experience in both financial services as well as blockchain. Starting with their CEO/Founder Michael Novogratz, who began investing in blockchain and cryptocurrencies back in 2013, prior he worked at Fortress Investments for 13 years and Goldman Sachs for 11 years. Below you can see BMO’s breakdown of management, they write, “In our view, the combination of a deep understanding in traditional financial services, plus a history of experience in blockchain and cryptocurrencies through multiple investment cycles, imbues Galaxy with valuable strengths.”
BMO comments that the BitGo acquisition and US big-board listing could provide a catalyst for the stock. BitGo as of the second quarter of this year had $27 billion of assets under custody, up over 100% year over year and has a $30 – $40 million run rate. BMO believes 75% of that revenue to be reoccurring.
They acknowledge that the acquisition is expensive and dilutive to the companies current shareholders and near term earnings, but believe that this transaction offers long-term benefits which include:
- platform expansion
- a new source of revenue
- customer and geographic growth synergies
- opportunity to add new technology development initiatives to the business
BMO lastly gives a few risks associated with the company which includes the “mainstream idea” that cryptocurrencies are mainly used by criminals, market manipulators, and drive high retail speculators. The second risk they say could affect Galaxy is regulations may hamper growth and they believe the biggest issue with regulation is “the classification of cryptocurrencies as commodities or securities, which would determine how existing regulations apply to cryptocurrencies and companies in the industry.”