Research Note - Ether Capital Corp. (ETHC:NEO,$2.50|BUY $3.50 TARGET) Wyre Sale Cancelled – Cheap Regardless

This morning, Ether Capital announced that the acquisition of Wyre has been cancelled. Wyre and Bolt have mutually agreed to remain independent businesses, cancelling the acquisition that was expected to close by year-end. Wyre will enter into a commercial agreement with Bolt to implement Wyre’s one-click solution for the Bolt customer platform. Ether Capital will continue to own its minority stake in Wyre and will assess with fair market value as part of its Q3 financials. As such, we are reducing Wyre’s valuation in our model from $20.2M ($0.58/share) to its book value of $4.2M ($0.12/share). In April, Wyre announced that it was expected to be acquired by Bolt for US$1.5B, providing a large return on ETHC’s minority stake that it purchased in December 2018 for US$1.5M. Approximately 89% of the consideration was expected to be paid in Bolt common shares over four years and the remaining 11% will be paid in cash over two years. ETHC’s Q2 financials outlined that there were materials risks to the valuation of Bolt’s common shares due to the decline in technology firm multiples over the last six months; news sources have reported that Bolt was recently valued at $5.5B vs. $11B in January. We think that the silver-lining in today’s announcement is ETHC will be able to hold a crypto pure-play rather than an ecommerce company in its portfolio until another monetization opportunity arises. We continue to believe Ether Capital is the best public instrument to play the Ethereum merge (which is expected on September 15th), given its mark-to-market holdings and exposure to staking. Management continues to be bullish on Ethereum’s transition to Proof of Stake and believes the merge will result in a rebound in ETH as the asset becomes deflationary. We would like to remind readers that the introduction of EIP-1559 and the merge of the proof-of-stake system with the Ethereum mainnet brings the potential for much larger staking yields (>10%) based on transaction fee rewards being returned to ETH stakers (rather than miners). ETHC plans to stake another 10,000 ETH after the merge, adding ~$1.0M in annual revenue.


Nevertheless, we continue to believe ETHC is heavily undervalued relative to its mark-to-market holdings and earnings power. We will take this opportunity to update our NAV and financial assumptions for the lower crypto prices (see Figure 1,2,3). ETHC currently trades at a 17% discount to its liquid holdings alone ($3.02/share). Given the various upcoming opportunities for ETHC to begin generating value beyond its NAV and generate positive free cash flow, we believe the stock should trade at a premium. We are maintaining our BUY rating and revising our target price to $3.50/share (previously $4.00/share) due to the lower crypto prices and Wyre valuation.



20220912 - M Partners - ETHC - Wyre Update
.pdf
Download PDF • 210KB