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Hi JTF - I agree it would be good to have a better combined view and also that anybody not into this sort of thing should look away now :)

I think the PE Ratio is pretty much defined i.e. PE Ratio = SP / Earnings Per Share which if same as saying: PE Ratio = mcap / Earnings. So key is what is earnings. It is defined in the above as the earnings available to shareholders which in ARBs case is I think the annual profits after tax. I'll call this ANR to match your acronym.

The ANR reported by ARB is made up of 5 key elements:
1) Mining Revenue less
2) Mining Costs (note the margin quoted in operational updates does NOT include the cost of rigs) less
3) Depreciation (this is where the costs of rigs is along with other, relevant capital spend) less
4) Other Costs (wages, consultants etc)
The 5th element (good film by the way) is the change in value of HODL. ARB bring this through reported earnings under accounting standard IAS2. So in the mining revenue they take the BTC value at time of mining and any subsequent movement in 'fair value' is reported separately as profit or loss (in 2020 this was £2m). So this is where our methods differ significantly. I do not use HODL directly as the PE ratio should apply just to earnings - not the assets on the balance sheet. Of course having no debt and/or lots of assets on the balance sheet is good but this should not impact the PE ratio only I think the interpretation of it.
To estimate earnings:
1) Mining Revenues - This is reported each month so is straightforward
2) Mining Costs - This is simply from the reported mining margin
3) Depreciation - This is predictable (until they spend more capital). At the moment it is running at £0.5m per month (derived from 2020 accounts) plus need to allow for cost of leases on the 4500 miners recently brought on-line (£0.3m pm).
4) Other costs - these are small (currently around £0.2m per month)
5) Change in value of HODL - This is simply a calculation of increase in value of HODL assuming a value at the end of the year (if estimating the 2021 amount) and applying this to the HODL at the start of the year and coins mined during the year (at the dates and prices included in 1) above).

So looking at the monthly production I get ANR of:
163 x £27k (BTC converted to £) x 0.85 (margin) - 0.8 (costs of rigs via depreciation and leases) - 0.2 (other costs) = £2.7m or say £2m net of tax (assuming the company starts paying soon) which is £24m in a year. Much lower than your number but it excludes the increase in HODL as the method above makes more sense when estimating a full year's earnings (which is what I use it for). One approach here could be to assume a percentage annual increase in BTC, say 50% to give $57k in one year. This approximately doubles the ANR in this case giving £48m or say $66m - so now higher! If doing actual projections needs a lot more assumptions (future mining rates, impact of developments etc.). Comments welc

Hi RC - I also think the mcap should be in region of £1bn by the end of the year (just couldn't work out how you got there). I still don't think it has generally caught on just how much more money ARB is making this year than in 2020, even with all the info on the monthly updates. So if we don't get there by the end of the year we may when the results are published in April and the likely, thumping profits are there for everyone to see (provided BTC is at a decent level, say $80k+ at year end).

As you say, though the financials might point to that sort of mcap sentiment may also have its say. Agree on nasdaq too in terms of a helping hand.

Thanks RC, thought I was losing my marbles - though it would have be good if ARB did have $1bn or so of loose change rattling around in their pockets by the end of the year ;)

Hi JTF. I think we just approach things from a different direction. I work from actual or projected net o f tax earnings to calculate a mcap/sp (for a given P/E ratio) or a P/E ratio (for a given share price). Part of those projected earning earnings will be from the increase (or decrease) in value of BTC held and so it feeds in that way. So for me the HODL does not affect the mcap directly - only through its impact on earnings if the BTC price changes - if that makes sense. In fact I'm not sure how I would relate HODL value to SP/mcap directly but luckily I don't have to :-)

Thanks for the response JTF. I agree that the higher HODL of MARA will increase their profitability (assuming BTC goes up) but as you only quoted a single BTC value ($38k) I couldn't see how you would have allowed for it. How you've done that I'll leave to you - as I said I wasn't trying to dissect the numbers but just understand why they were so close - especially as one of the reasons I am invested in ARB is that I believe we are undervalued on our financials both on a standalone basis and when compared to MARA and RIOT (and this comparison is also one of the reasons why I think NASDAQ will benefit us). So just wanted to test this.

If I understand you correctly you are also focusing on the relative trends more than the actual numbers so the published results may be very different (though they'll be backward looking of course). Given ARBs greater efficiency I suspect we will look better in comparison (unless BTC really goes ballistic in which case their greater HODL will come more into play). Just have to wait and see but for now I'm still happy in my own mind that the sp is much lower than it should be based on ARBs current profitability, even without the all the good things on the horizon.

Cheers again H.

Hi JTF - it seems to be my day to be confused by numbers. I'm struggling to see how MARA's PE ratio is so close to ARBs. I thought they were much less efficient than ARB so their net earnings from 162 coins mined in April would be much lower than ARB (with almost the same number, 163) which together with the higher share price (partly offset by the fewer shares in issue) would give a much better (ie lower) PE ratio for ARB? I don't see how the HODL figure comes into it unless you have assumed a higher future BTC value, in which case that might explain it as they have a bigger HODL but you've said that you've based it on $38k so I'm stumped.

I'm raising it not to pick holes in the calculations but because I thought the consensus was that we were significantly undervalued versus MARA but having a similar PE ratio perhaps suggests not. I admit I don't know MARA's numbers that well and could easily have made a mistake but are you suggesting that we are fairly valued compared to MARA? (Haven't looked at RIOT.)

Agree Blubay, and if that gets us to $80-$100k by the end of the year then also think your £1bn mcap estimate is very reasonable and I'd be more than happy with that (with more to come).

@blubay - maybe but HODL less margin has no meaning as far I can see and anyway 50000 x .8 x 2500 = 100m not 1bn - or am I going mad - hate so many zeros!

Hi RC - unless I've misunderstood what you are trying to do, don't you mean $100m rather than $1bn? Also shouldn't it be earnings rather than HODL that are more relevant for mcap purposes (though for ARB there may not be a lot of difference between the two at the end of this year). Or are you applying a P/E ratio of 10 (though again this should be applied to earnings - not a figure derived from margin and HODL). Sorry in advance if I've mistaken what you meant but am just confused.

Hi Armada - Texas land was paid through shares so no impact on cash flow.

Wrong. It does sell BTC - it just can, and does, choose when.

Just to be clear for those that might be concerned by this FUD headline:

1) There is no long-term debt and tiny amounts of short-term debt (other than the lease liability)
2) Lease liability is £7.4m payable over 24 months so just over £300k pm
3) Cash flow is strong - even at $35k BTC positive cash flow from operations should be at least £2m per month (after all ongoing costs including lease payments)
4) £49m was raised in Q1 from share issues and most yet to be spent on developments so plenty at the moment available for further development (plus of course have existing BTC HODL).

Facts not fear...

Saints for me.

Easy on the eye, should be higher but prone to the odd collapse.

Sounds like a certain share except I believe great things lie ahead for ARB whereas we'll probably get 'hammered' this afternoon.

Thanks Everup. To be clear I was only using the example of BTC going to zero for illustration. Personally I don't think BTC will go anywhere near the level at which it stops making profits, let alone zero. So I think the company will comfortably weather the storm even though the SP may take a bit more of a bashing in the meantime (depending on what BTC does in the next few weeks - which I don't think anybody knows despite many saying they do). Cheers.

Worth also remembering that they do take out futures/options/swaps to protect themselves against drops so hopefully this has dampened the impact of recent falls in BTC too.

Everup, Mittenator

I agree that if BTC drops in value then the number of coins mined should increase and so there is some offsetting in terms of profitability. But to say "if the BTC price massively drops their profitability is balances out by the continued increase in hash rate" seems a bit bold? After all if BTC went to zero then there would be no revenue at all from mining so it is definitely not true at that extreme and presumably won't be if it drops 80-90% (unless you think it can really mine 5 to 10x the amount)?

I would think it more reasonable to say that increasing BTC value is good for ARB but a decreasing BTC is not as bad as everybody makes out (and hence has more impact on the ARB SP than it should).

On the other hand it is fair to say if the price drops and then recovers then this is actually better than the price staying flat. This leads to perhaps the more important point that it matters much more where BTC is in months and years than what it does day to day.

Agree @Blubay - there are lots of variables and plenty of subjectivity but my point really was that I suspect for Arb many are investing without quantifying future profits at all - rather that it is simply in the Crypto space and 'going to the moon' or they just like the company and what it is doing. That's fair enough and there is nothing wrong with that, it just means it is more an emotional approach based on faith instead of trying to actually estimate future profits and evaluate what a fair value is. As such it is harder to say what will and won't affect SP.

@mwhite22

I think Argobull is right in saying the ePIC machines are likely to end up in Texas in which case the Feb 22 announcing the tie-up is helpful, for at least part of the picture anyway:

"As part of the agreement, Argo has committed to an initial purchase of US$8 million of ePIC's mining rigs and will have priority on all future production runs of ePIC machines globally for 2021 and 2022. Expected delivery of the machines will begin in early Q4, 2021. Larger scale delivery of ePIC machines will commence in 2022. "

Agreed. Whatever way you look at it the potential numbers from Texas are sky high even if it may not be as good and as simple as scaling up the existing numbers.

One thing to bear in mind though is that the current mining margin of 85% does not include the cost of mining rigs - only the hosting/power costs. The costs of developing and/or building and/or buying new rigs will come through as an expense through profits too - probably as depreciation. There will also no doubt be additional operational costs beyond power. These may be relatively small compared to the benefits though and assuming things go to plan the scale of the impact may not be far off the numbers you suggest. Good times!

PS - just seen question re cash. I believe at least half of the money from the fund raisings in Q1 is still available for this (so maybe £20-£30m?) but no idea if this sufficient for the development.

I agree with you wasarunner that shares are generally traded on their future earnings and that the future value of BTC is far more important to ARBs profits than any movements in BTC today.

That assumes though that this is how everybody is valuing this share which I very much doubt. For example if it was I think the sp would already be much higher and also you wouldn't have the running commentary on BTC that appears on this board.

What is certain is that, as you say, like all shares it is not just one thing that moves sp. For ARB the BTC value is a big thing but still just one thing (and should become less of a thing as it diversifies).

So anybody who expects ARB sp to slavishly follow the value of BTC will be disappointed but so will anybody who thinks daily movements in BTC are unimportant and won't have any impact. It's much more complicated than that.