Northern Data – The Perfect Indirect Exposure to Bitcoin
This Christmas was surely a merry one for owners of Bitcoin.
While purists would always argue for owning Bitcoin directly, this simply still is not possible for most professional investors and fund managers. For these investors, a good alternative to bridge the time till Bitcoin will have become fully mainstream is to invest in stock-market-listed companies that profit from the increase in the Bitcoin price.
One of the most promising of such companies is Northern Data AG, listed on the German stock exchange (XETRA: NB2, ISIN: DE000A0SMU87). The stock offers both: upside participation if Bitcoin price goes up, but also strong resilience against downside because of a great base case, which is independent of Bitcoin price.
The base case already offers significant upside independent from Bitcoin price…
Northern Data has a great core business which is relatively independent of the (sometimes volatile) price movements of Bitcoin itself. The company is well on its way to becoming the world’s leading provider for high-performance computing (HPC) infrastructure. At its signature site in Texas, several blue-chip clients like SBI, GMO, and Block.one (yes, THE Block.one…) perform mainly Bitcoin mining. At other sites, Northern Data also has HPC clients in the fields of AI, scientific modeling, and others – in general, any field which requires high-intensity, specialized processing.
Most importantly: all customers pay fixed service fees to Northern Data, and this revenue is independent of the development of the client’s business – in the case of their Bitcoin mining clients, this revenue is independent of Bitcoin price movements. With this fixed-basis revenue alone, the company plans to achieve revenues of EUR 350 million to EUR 400 million and an EBITDA between EUR 100 million to EUR 125 million in 2021. Hence, Northern Data is valued at only around 10 times 2021 EBITDA, significantly lower than many peers.
…. And the upside from rising Bitcoin prices is the icing on the cake
While Northern Data is, as mentioned, not directly exposed to Bitcoin mining itself, the contracts with several large clients do include performance-based upsides, which are of course linked to the Bitcoin price. Note that this performance-based upside is not included in the company’s guidance yet.
Additionally, new clients are rushing towards Northern Data like there is no tomorrow. Northern Data is the only data center provider in the world which is able to offer BTC mining services at such a scale. All existing clients are already making use of several-hundred-Megawatt capacities each. Taking all clients together, this should be the largest Bitcoin mining cluster in the world. And Northern Data’s site in Texas can service up to 3.6 Gigawatts (!) in the medium term.
Plenty of upsides
Most comparable companies are valued around 20 -30 times EBITDA. From this point of view, the stock can easily double and more. And the company has stated that the guidance is rather conservative, so we expect it to be increased in Q1 2021. German Investment bank Hauck & Aufhaeuser has set a short-term price target of EUR 120/share, US investment bank Stifel of EUR 90/share.
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