DigitalX Limited

DCC Details

Key Takeaways from Q4FY21: DigitalX Limited (ASX: DCC) is a technology and investment company focused on blockchain consulting and digital asset funds management. DCC is engaged in commercialising Drawbridge, a RegTech solution to aid listed companies in managing their governance and compliance policies. On 3 August 2021, DCC declared the appointment of Mr Gregory Albert Dooley as a Non-Executive Director in the company. 

• Revenue Increase: DCC recorded $8.7 million of revenue (unaudited), up by 1,122% QoQ in Q4FY21.
• Higher Cash Receipts: The company reported an increase in cash receipts by 178% QoQ to $738k in Q4FY21 (June 2021 quarter) because of the Q3FY21 fees receipts from the Funds Management division.
• Robust Liquid Assets Position: As of 30 June 2021, DCC had liquid assets consisting of listed digital assets, cash, and liquid unlisted investments of $33.027 million.
• Net Operating Cash Flow: DCC generated $36,000 of net operating cash flow in Q4FY21 versus operating cash outflow of $387,000 in Q3FY21.
• Funds’ Performance: The two wholesale funds managed by DCC DigitalX Bitcoin Fund, and the DigitalX Fund recorded annual gains (after fees) of 253.99% YoY and 387.20% YoY, respectively.
• $60 million Government Grant: DCC announced the grant of $60 million from the Federal Government to bid for the Digital Finance Cooperative Research Centre (CRC). The offer was well-supported by Australian Universities, major banks, and global technology firms.
  

Revenue & Net Income from FY16-FY20; (Analysis by Kalkine Group)

Key Risks:

• Technology Risks: DCC faces technological glitches and advancements in the industry and managing niche digital assets funds and cryptocurrency.
• Financial Risks: The Group faces many financial risks, including liquidity, forex rate risk, credit risk, interest rate sensitivity, and digital asset price risk.
  

Outlook:

• In Q4FY21, DCC has submitted a proposal to the Australian Securities Investment Commission (ASIC) to expand the Drawbridge application's capabilities and seek government funding. DCC will undertake a feasibility study to develop innovative technology solutions and await the Government response on the application. 

• The company is optimistic about growing further in FY22, deploying the opportunities at hand based on its enhanced position in the emerging technology and developed portfolio so far.
• The company evaluates digital asset exchange infrastructure tools and grows a network of digital asset exchange providers to store assets on the exchange to generate yield. DCC expects to receive the first returns from its digital assets’ monetisation strategy in the next quarter.
  

Stock Recommendation: The stock of DCC gave a positive return of 1.96% in the past month and a positive return of 33.33% in the past year. The stock is currently trading lower than the 52-weeks’ average price level of $0.035 - $0.135. On a TTM basis, the stock of DCC is trading at a price to book value multiple of 1.7x lower than the industry (Technology) median of 4.6x, thus seems undervalued. Considering the low trading levels, increase in cash receipts, revenue, positive net operating cash flows in Q4FY21, growth in the performance of both Funds, valuation on a TTM basis, and associated risks of adequate funding, evolving regulatory landscape, and financial risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.052, up by ~1.960% as on 5^th August 2021.

DCC Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

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Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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