Company Overview: DigitalX Limited, formerly Digital CC Limited, is an Australia-based software solutions company developing products and services. The Company is involved in the activities, which include development of software for retail-based consumer applications; Bitcoin trading and the operation of a liquidity desk, and Bitcoin mining. The Company operates through two segments: Software Development and Trading. The Company offers AirPocket, which is a short message service (SMS)-enabled, international mobile bill payments platform and mobile money remittance application. The application supports international Airtime transfers for the United States consumers to approximately 10 countries in Latin American in a partnership. The application is available on Google Play and the Apple App store. The Company also offers DigitalX Direct, which is a business-to-business liquidity platform that is designed to provide real time liquidity to institutional investors and commercial operators.


DCC Details

DigitalX Ltd (ASX: DCC) is an innovative digital payment solutions company providing investors with exposure to multiple facets of the Bitcoin industry and the digital payments sector, including bitcoin mining, trading, and consumer wallet applications. It focuses on four main core areas i.e., ICO Management & Corporate Advisory, Blockchain Consultant & Development, Crypto-asset Fund management, and Blockchain Investor Education and Crypto News Services. The company has developed a suite of new and innovative digital assets for institutions and consumers at the back of the combination of the highest quality technical talent, industry experience, investor and exchange network, and its marketing partners. As of now, the company is fully funded through the cornerstone investment led by Blockchain Global and is positioned as a leader in the industry. Although, the cryptocurrency sector is witnessing some downtrend lately, the cornerstone blockchain technology of DCC seems to be a resilient one.


Overview of Company’s Roadmap (Source: Company Reports)

AirPocket - a key player: AirPocket is the first Blockchain-enhanced mobile remittance application around the world and it offers US AirPocket users the ability to make low-cost international money transfers to 14 countries across Latin America. The company’s key focus is on the upgradation of AirPocket App aiming to grasp opportunity at the emerging markets in the cryptocurrency and Blockchain spaces. There is a vast opportunity in Blockchain transaction and identity management/verification technology which underpins AirPocket software. The company will inform the market soon about its plan for further development and commercialization of AirPocket. We expect that AirPocket App will hopefully see an increase in awareness, resulting into higher usage rate. If it succeeds, then this project could put Bitcoin on the world map in term of settlement arrangements.


AirPocket remittance process (Source: Company Reports)

Strategic Alliance to push revenue growth: Over the period, the company has done strategic alliances with many players such as Blockchain Global Limited, Stargroup Limited, etc. to boost its organic and inorganic growth, for instance, through bitcoin ATM. Moreover, the company is currently focusing on the America remittance channel as there is a vast worldwide opportunity. We expect that the company could move forward to expand globally through various acquisition or acquire new technology which aids its overall growth in the year ahead.

Strong Client base: The company has a successful track record of advising projects that have successfully raised hundreds of millions to bring exciting Blockchain technologies to market. Based on strong demand, the company has recently organized a conference in Perth, Sydney, and Melbourne, in addition to one-on-one meetings with potential buyers and partners. By virtue of on-going efforts, the group has been able to add many business lines to the core structure. Some of these are Mailguard, Bamboo, Bankorus, Shivom, CoinPoker, Power Ledger, etc.
 

Strong Client Base (Source: Company Reports)

Quarterly Activity (31 March 2018): The company released its Quarterly report for the quarter ended 31 March 2018 wherein the group had total cash of US$5.3 Mn and digital assets trading on exchanges of ~US$5 Mn at quarter end. Despite the fall of Cryptoasset market by approximately 56% from 31 December 2017 to 1 April 2018, DigitalX prudently managed its treasury during the quarter to ensure a near 30% increase in the Company’s cash position. As a result, the group generated cash inflows of approximately US$1.7 Mn during the quarter, predominantly from ICO advisory services.

Expanding cryptocurrency opportunities: Recently, the group reported that they are starting a funds under management division, DigitalX Investments, to enable high net worth and institutional investors having access to a portfolio of cryptocurrencies. DigitalX fund will invest primarily in the leading cryptocurrencies, with the smaller allocation towards special trading opportunities including initial coin offerings (ICOs). In addition to this, the company will hold 73% interest in DigitalX Funds Management Pty Ltd, and infused the fund with over $750,000 from their current Bitcoin and Ethereum asset base. The group sold over 60 Bitcoins at over US$8,500 during April 2018 to seed the fund.


DigitalX Exchange Listed Cryptoasset Holdings as at 31 March 2018 (Source: Company reports)

Financial Performance: The group posted a net profit in the first half of the financial year, with revenue primarily driven by strong growth in its Blockchain and Initial Coin Offering (ICO) advisory services. The Group’s total comprehensive income for the period ended 31 December 2017 was US$8,031,669 (2016: US$1,590,182). The profit was mainly impacted by the growing revenue from ICO consulting commissions and change in the fair value of Digital Assets held. The Group generated a revenue (consulting) of US$3,531,602 for the period. It leveraged its marketing partnerships and applied its robust focus on compliance to deliver a comprehensive consulting offering to ICO clients. DCC consulted Blockchain companies around the world that collectively raised more than AUD$300 million during the period. Consulting Revenue contributes to about 40 per cent of the Group’s total income for 1HFY18. EBITDA margin and Net Margin stood at 8.1% and 225.7%, respectively during 1HFY18. Basic Earnings per share for the period was US $2.25 and whereas the same was recorded at (US$0.09) for the corresponding period in the prior year. Both RoE and RoIC as at December 2017 stood at 109.9%, against values as at December 2017 of (88.1%). On the balance sheet front, the current ratio substantially improved from 0.37x in June 2017 to 58.77x in December 2017. Besides this, account receivable turnover ratio increased from 0.5 times to 26.8 times, representing better management policy and providing an opportunity to apply strong credit and collection practices, thereby reducing the working capital investment needed to run the business.


Consolidated Statement of Profit and Loss (Source: Company Reports)

ICO Corporate Advisory and Blockchain Consulting - long term growth driver: During the quarter, the company continued to secure corporate advisory engagements to provide services to ICO. Further, with the rise of initial coin offerings (ICOs) in 2018, the company was continuing to strengthen its ICO advisory service and looking at significant demand for these services. Resultantly, the group signed ICO advisory service mandates with Bankorus, Shivom, and Human Protocol with the objective of providing seamless services and enhancing its geographic reach. During the quarter, the group has been appointed as Blockchain Consultant to Perth based software and data management company Transcendence Technologies Limited (TTL). Further, the DigitalX will review the company’s current product offerings and will provide Blockchain consulting services to the board and management of TTL. DigitalX will then commence a process of exploring how distributed ledger technology could be integrated into TTL’s current business model. On the other hand, the group was appointed by MailGuard as a corporate advisor to the world’s largest private Software as a Service (SaaS) email security company. Moreover, the group has been also appointed as a Blockchain advisor to ShareRoot Limited (ASX:SRO) to provide advice on how Blockchain based systems can enhance SRO’s Media Consent platform with Blockchain solutions to further lift platform offering. After successfully scaling up of its ICO advisory division and Blockchain, DigitalX is continuing to consider ways to expand its business verticals by building on its strong position as a leader in the Blockchain space. It remains focused on expanding its portfolio of clients across its core divisions of ICO advisory and Blockchain consulting and generating commercial value from Blockchain development. 

Other Key Updates: During the quarter, the Company issued 7,002,253 fully paid ordinary shares on conversion of unlisted options; and 1,000,000 fully paid ordinary shares as approved by shareholders upon the conversion of performance rights held by the CEO. Moreover, Tim Davies has been appointed as Head of DigitalX Investments and Portfolio Manager of the Fund.

Outlook: The company offered a positive outlook and reported that they used the crypto asset markets correction for executing strategic business activities which are expected to offer better revenues during market cycles. They see an ongoing growth in the Australian market and intend to expand through Asia, Latin America, and the United States in the coming quarter. The group also sees that the recent regulatory news is positive for many countries including Australia and it is well placed to leverage the acceleration towards regulated Blockchain-backed assets.

Stock Performance: The company is aggressively heading towards leadership position in cryptocurrency and Blockchain technology applications at the back of strategic investments, new product launches, and strengthening of technical talent pool. Over the period, the company has gained a strong position both financially and operationally, and it is confident of delivering ongoing growth. Besides this, the company’s investments to foray into cryptocurrency and Blockchain spaces would provide good synergies to business in coming years. Moreover, the company issued some fully paid ordinary shares upon exercise of certain Unlisted Options at $0.0324 expiring 1 September 2020. Meanwhile, the stock has risen 108.89% in the last one year as at June 20, 2018 but fell about 54.15% in the past three months based on high volatility in cryptocurrency market. Based on aforesaid facts and resilient fundamentals in view of current trading scenario, we give a “Speculative Buy” recommendation on the stock at the market price of $ 0.093.
 

DCC Daily Chart (Source: Thomson Reuters)

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