To investors,
The Sohn Conference, where investors pitch their best investment idea, was hosted on April 3rd. The next day, I wrote to this group and said that I would have pitched DeFi Technologies, Inc (NEO: DEFI) (GR: R9B) (OTC: DEFTF) if I had attended Sohn this year. You can re-read my analysis here.
Here is an excerpt on why I thought DeFi Technologies was highly undervalued:
“By my calculation, Valour’s average fee generation on their AUM is approximately 7.2%. That is a monster number for the asset management industry.
This understanding alone would make DeFi Technologies and Valour an interesting potential investment. But you have to remember that these ETPs they manage are holding crypto assets, with Solana being their largest ETP, so the asset values continue to grow rapidly during a bull market.
For example, here is an excerpt from the company’s recent earnings report:
“Assets Under Management ("AUM") grew 476% to approximately $508 million as of December 31, 2023, up from $106 million as of December 31, 2022. Valour Inc. and Valour Digital Securities Limited's ("Valour's") current AUM stands at C$880 million.”
That means Valour’s AUM has grown more than 800% from December 2022 till today. There are very few businesses in the world who can see this type of revenue acceleration without having to expend an insane amount of money on sales and marketing.
As of this morning, the current market cap of the DeFi Technologies is about $140 million USD. That may seem reasonable on the ~ $10 million they reported for 2023.
There are two points that may change the way to look at those numbers though. It appears that more than 75% of those revenues were created during the last 90 days of the year. Additionally, given the ~ $650 million USD in current AUM, that would imply an annualized revenue run rate of $46.8 million.”
It appears the market is starting to pay attention. The stock is already up more than 16% in the ~ 6 weeks since I wrote about my pick.
But I think the company is still undervalued.
DeFi Technologies released their Q1 earnings report yesterday and the numbers were incredibly impressive. Here are the highlights:
Record Operating Revenues and Net Income: DeFi Technologies recorded its strongest quarter ever, achieving Operating Revenues of C$13.4 million and Operating Net Income of C$5.3 million for Q1 2024.
Strategic Advancements and Product Launches: The quarter featured the launch of multiple Exchange Traded Products ("ETPs") by subsidiary Valour Inc, and Valour Digital Securities Limited (together, "Valour") alongside strategic acquisitions such as Reflexivity Research LLC, significantly enhancing the company's product offerings and market position.
Substantial Growth in Assets Under Management (AUM): AUM grew by 78.7% to approximately C$908 million, driven by favorable market conditions, new product launches, and strategic corporate actions that enhanced trading volumes and overall financial performance.
2024 Outlook: Looking ahead, DeFi Technologies projects its annualized Operating Revenues to reach approximately C$119 million (US$87.45 million) for 2024, supported by ongoing AUM growth, upcoming ETP launches, and the integration of new acquisitions, which are poised to capitalize on the favorable conditions in the digital asset sector.
These numbers show a business that is on an annualized profit run rate of $15 million USD, yet the company is only trading at ~ $180 million market cap. What is interesting though is that DeFi Technologies gave 2024 guidance yesterday for about $87 million in revenue and more than $75 million in profit. If you take those numbers as reported, this means that DeFi is only trading at ~ 2.4x their projected 2024 profit.
Now you see why it appears to be an undervalued company.
But let’s say you don’t believe the company’s guidance. The business still reported approximately the same revenue in the first 90 days of the year that it did in all of 2023. A growth rate like that would suggest a much higher multiple for a company that has high capital efficiency.
There was one other thing buried in the earnings report that is worth paying attention to. The company said:
“In addition to the Company's existing business units, a new alpha-generating business ("DeFi Alpha") unit was formed in Q2 2024 in order to generate yield on the Company's excess liquidity. The focus is on arbitrage trading opportunities in the digital asset space with low risk in both centralized and decentralized markets (with minimal market or protocol exposure), thereby minimizing downside revenue volatility. DeFi Alpha has come off to a promising start, generating approximately US$40 million thus far in 2024.”
If I am reading this correctly, DeFi Technologies is saying that they have already booked $40 million of revenue in Q2 from a newly created business unit that didn’t previously exist. That would mean that the company has done 5x growth in revenue over their 2023 numbers in just the first 5 months of the year.
Regardless of how you cut the numbers, I still believe that DeFi Technologies is undervalued. Given this additional information in the latest earnings report, I believe DeFi Technologies has a good chance of being one of the best performers from any stock that was pitched at the Sohn Conference in April.
I am not merely sharing my opinion though. I am a shareholder of DeFi Technologies that will benefit if the market figures out the company is undervalued and I will be financial punished if the company ends up not performing how I believe it will. We also sold one of our companies, Reflexivity Research, to DeFi in a 100% all-stock deal earlier this year. True skin-in-the-game.
I’ll continue to monitor it and keep everyone updated. Hopefully my analysis is right, but you should do your own research. Nothing I have said here should be confused for investment advice. I am merely trying to highlight a company that shows how misunderstood crypto companies are by the public markets. Eventually the market will figure it out, but for now there still seems to be quite a bit of opportunity available to various public market investors who take the time to do the work.
Hope you all have a great day. I’ll talk to everyone tomorrow.
-Anthony Pompliano
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