| MOGO-T: Price/Volume Chart Source: Factset Company Description Mogo is a leading Canadian FinTech platform that has leveraged its consumer financing roots to build a next-gen digital ecosystem for non-bank financial products, including online lending, credit scores and credit monitoring, prepaid credit cards, and mortgage brokering, all under a differentiated brand catering to millennials, Gen Z's, and the financially underserved. | In a move akin to SQ (Not Rated) acquiring a stake in Coinbase (private), Mogo announced they are taking a major ownership stake in Coinsquare, one of Canada's largest crypto exchanges and an existing Mogo partner (Coinsquare has powered the back-end for Mogo's bitcoin trading offering for the past few years). We like the transaction, as it future proofs Mogo as bitcoin continues to see greater mainstream acceptance and becomes a more material part of their business. We raise our target price to $16/share (was $10/share) based on 13.5x (was 9x) F22E net revenues to reflect Mogo's growing platform value, with an option on deeper vertical integration in crypto, in addition to recent peer multiple expansion in the fintech square. Key highlights: · Doubling down on crypto. We see the investment as future proofing Mogo's crypto technology stack as bitcoin trading activity grows on the platform (we estimate bitcoin still only accounts for a mid-high single digit % of revenues, but remains the fastest growing segment in the business today). The deal ensures Mogo can continue to leverage Coinsquare’s strategic role in powering their bitcoin trading offering, with the ability to increase their stake as they look to vertically integrate more of the crypto exchange/trading capabilities with immediate synergies from greater margin on trading spreads. For Coinsquare, we believe the key draw was access to Mogo's more sophisticated digital wallet and payments capabilities to accelerate their own technology roadmap. · Attractive investment in light of current crypto asset valuations. Mogo will be paying $56.4mm for 19.99% of Coinsquare, via at least 40% in shares (minimum 1.96mm Mogo shares), and the remainder in cash through their current ATM program, further highlighting Mogo’s ability to leverage their rising share price as currency. Mogo has the option to purchase an additional 20% of Coinsquare over time, locking in their ability to increase their stake at the current pre-money valuation of $250-300mm, which we note appears highly attractive when considering Coinsquare’s January trading volumes of +$525mm and AUM of +$500mm vs. VYGR's (Not Rated) current ~$2bn market cap, with January trading volumes of $1.07b (US$840mm) and AUM of $1.02bn ($800mm). Based on VYGR's current market valuation, we estimate Mogo's $56mm/20% stake could be worth an incremental $200mm in equity value, or $400mm with the 40% option exercised. · Well positioned for upcoming regulatory changes. Founded in 2014, Toronto-based Coinsquare is one of Canada's largest crypto exchanges. Having dealt with regulatory missteps under prior leadership back in '18-19, the company has since overhauled its management team, board, and technology platform. Coinsquare is now led by CEO Stacey Hoisak, a former lawyer at Stikeman Elliott and ex-counsel at Birch Hill Equity Partners and TMX, while the board has been bolstered by the additions of Nicholas Thadaney, former President of the TSX, and Wendy Rudd, a former senior executive at IIROC. As such, we believe that Coinsquare is one of few major Canadian crypto players well positioned to be formally regulated by the OSC, which in our view brings significant credibility and a go-to market advantage vs. peers as the regulatory backdrop continues to evolve in Canada. |