Mogo Inc T.MOGO

Canaccord Genuity raises MOGO target price to $6.00

[ndiamond]

This is still a very conservative target price when you compare the multiples given to MOGO's peer group.     I expect we'll see the share price move much higher than $6.00 over the coming weeks...

Mogo Finance Technology Inc.

Financial Technology | Raising Target Price

Riding the Bitcoin wave to accelerating member growth

MOGO-TSX; MOGO-NASDAQ | Price C$5.10  | Market Cap C$260.4M

SPECULATIVE BUY Unchanged

PRICE TARGET C$6.00↑ from C$4.00

Investment Recommendation

Following the recent surge in Bitcoin prices and activity, Mogo reported a fresh round of metrics this morning that demonstrate this trend is translating into both increased activity from existing members and strong new member growth. We see the member growth as a key positive as the company looks to further monetize its member base, which now stands at over 1.1M. On the back of this stronger member growth and improved sentiment towards Bitcoin-related assets, we are increasing our target multiple. We now apply a ~6x EV/Sales multiple (from ~4x) in our new $6.00 target (from $4.00). We continue to rate Mogo a SPECULATIVE BUY.

Investment Highlights

• Recent Bitcoin euphoria is driving strong activity levels. Mogo remains, in our view, one of the simplest ways for Canadians to purchase and hold Bitcoin with simple 1% transaction fees and with a Bitcoin rewards program tied to other products. With the recent surge in Bitcoin prices, the company this morning reported a 108% increase in new Bitcoin accounts in December vs. November and a 60% increase in the dollar value traded on its platform vs. the prior month. This comes after 135% M/M dollar value growth in November vs. October.
• Member growth represents a key valuation driver. Mogo also reported a 50% sequential quarterly growth in member additions, in part driven by Bitcoin-related adds. This suggests the member base has grown to over 1.1M. Given the company’s strategy to monetize this member-base through a growing portfolio of financial services products, we see the acceleration of Mogo’s member growth as a material positive incremental datapoint in today’s release.
• Corporate Bitcoin investment represents another tie-in between Mogo and cryptocurrency. In December, Mogo announced a $1.5M corporate investment in Bitcoin. While this is individually immaterial to the story, it serves to remind investors of Mogo’s connection to this trend. The company stated that it would consider making additional investments in the cryptocurrency when and if it monetizes portions of its $17M investment portfolio (book value).
• No change to our model, but we acknowledge that an extension of this trend could lead to upside in 2021. While we estimate that Bitcoin-related revenue is still <10% of revenue in Q4, should the trajectory continue, this could become a more meaningful contributor to overall growth in 2021.
• Recent ATM offering could help the company further improve its balance sheet. The company also announced a NASDAQ-focused “at-the-market” offering for up to US$50M. While we do not reflect the potential proceeds in our model until the degree of usage and issuance prices are known, the plan has the potential to further de-lever Mogo’s balance sheet. Leverage had been a concern for investors, but after a series of moves including the early conversion of the convertible debentures and renegotiation of unsecured debentures, the balance sheet position has improved substantially in the past year.

Valuation

Our target price of $6.00 (from $4.00) is now based on ~6x EV/Sales (from ~4x) reflecting accelerated member growth. The company currently trades at 6.3x EV/Sales based on consensus 2021E estimates vs. digital lending and payment solutions comps at 11.8x EV/Sales.