KeyStone’s Stock Talk Show, Episode 230. 


We have a busy show for you this week – as we prepare to launch our Fall 2023 DIY Stock Investing Webinars – tickets go on sale at the end of this week. Aaron will talk to you about his upcoming appearance on Money Talks with Michael Campbell, where he recommends 3 stocks. I will hit the mailbag this week and answer a question on Spin Master Corp. (TOY:TSX), a children’s entertainment company that creates, designs, manufactures (via outsourcing) and markets a diversified portfolio of innovative toys, games, products and entertainment properties including PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®, Rubik’s Cube® and GUND®. The company announced a significant acquisition this past week and a viewer wanted to know if this is a buying opportunity. Next in our YSOT segment Brennan answers a viewer question on Jamieson Wellness Inc. (JWEL:TSX), which develops, manufactures, distributes, markets, and sells natural health products including vitamins, herbal and mineral nutritional supplements for humans in Canada, the United States of America, and internationally. The business, which is posting strong revenue growth and pays a 3% dividend, sells products designed to improve your health, but can the stock help improve your portfolio, Brennan will let you know. Last and not least, Brett answers a viewer question on HIVE Digital Technologies Ltd. (HIVE:TSX) a growth-oriented technology stock in the emergent blockchain industry. With a bit (no pun intended) of a resurgence in bitcoin and blockchain related businesses, Brett let’s the viewer know if HIVE is a good option to participate in Bitcoin and/or blockchain’s future.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett, with Brennan.

Spin Master Corp. (TOY:TSX) 

Price: $36.65

Market Cap: $3.8 Billion

Company Description: Children’s entertainment company that creates, designs, manufactures (via outsourcing) and markets a diversified portfolio of innovative toys, games, products and entertainment properties. Best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®, Rubik’s Cube® and GUND®.

Event: On October 11, 2023 – Spin Master Reported a Sizable Strategic Acquisition.

Spin Master acquire US-based Melissa & Doug which specializes in early childhood toys with high-quality offerings of open-ended, creative and developmental wooden toys which will be complementary to Spin Master’s existing pre-school portfolio.

The full purchase price is US$1.1 billion composed of US$950 million in upfront cash consideration and approximately US$150 million in contingent consideration based on certain financial targets for 2024 and 2025, respectively.

The US$950 million is to be funded through $450 million of cash on balance sheet (Spin Master holds CAD$758.8 million in cash prior to the acquisition with debt of just CAD$66.9 million) and approximately US$500 million of debt financing. We do not know the acquisition’s full debt situation, but while Spin Master will be in a net debt position post acquisition, it should not be an onerous one, given the strength of its capital structure and strong cash flow ahead of the deal. Melissa & Doug generated approximately US$489.0 million of revenue and approximately $90.3 million of EBITDA in 2022, respectively. This translates into an EV/EBITDA multiple 10.5x, pre cost synergies of $25-30 million, expected to be achieved by 2026. Assuming mid-point of cost synergies of $27.5 million, the post synergies EV/EBITDA multiple is estimated to be 8.1x 2022 EBITDA. The transaction is expected to close in Q1 2024 and the transaction is EPS accretive immediately post close excluding synergies. It is estimated that the EPS accretion for 2024 would be approximately 8% on a full year basis, including synergies.


Following the announced transaction based on consensus forward EPS estimate of 2.69, Spin Master trades with a EV/EBITDA multiple of 5.3 times and a PE of 13.59.


Average: 11.2 times earnings. 

Spin Master: 13.8x

Our Take:

Spin Master has been a well-run business and a strong Canadian growth story. If we go back to 2015, the stock has almost doubled in value, but the 5-year return has been basically flat. This is likely due to the fact that normalized EPS was basically flat between 2017 and today (over the last 12 months). The company had a spike in 2021 and, in particular, 2022. But the nature of its business is one of a constant need for innovation – the goal to find the next great toy or toy line. A hit can boost earnings significantly, misses can hit. Spin Master has shown a strong knack for hitting more than missing and has come great current and legacy cash producing brands under its umbrella, which is how it has survived and created a cash rich balance sheet which helped fund the Mellissa and Doug acquisition. It appears like a smart, and less hit and miss business longer-term, but due to the fickle hit and miss nature of the toy industry and the lower recurring model of the business, the below average multiples are likely here to stay. It offers reasonable value, but the earnings on a quarter to quarter and even year to year basis will likely always fluctuate. We admire the way it is run, it is just difficult to forecast profitability with a high degree of certainty within a given year or 2-3 year period. We monitor it and our kids love their toys, but are not buying it at present, despite reasonable valuations.


YSOT Jamieson Wellness Inc. (JWEL:TSX) 

Price: $24.85

Market Cap: $1.04 Billion

Yield: 3.00% (forward yield)


Jamieson Wellness, develops, manufactures, distributes, markets, and sells natural health products including vitamins, herbal and mineral nutritional supplements for humans in Canada, the United States of America, and internationally.

Slide 2

Q2 Highlights – directly from the company’s investor presentation. I am just going to go over a few of the highlights here.

2) On July 19, 2022, the company acquired Nutrawise Health & Beuty Corp. (which sells supplements under the Youtheory brand) for approximately $265M Canadian. The acquisition was made as to provide a platform for expansion in the U.S. And as they noted new SKUs have begun to ship.

3) The company acquired the assets of its own Chinese Distributor for CAD$26M.

6) The company recently increased their quarterly dividend  from $0.17 to $$0.19 per quarter.

Slide 3

Moving to the recent financials, the company’s Q2 2023 was strong:

    • Revenue was up 50% Y/Y to $167.8M – Due to organic growth of 3.6% for Jamieson Brands and its acquisitions’ sale of Youtheory products.
    • Adjusted EBITDA was up 27% Y/Y to $31.1M – Due to lower Gross Profit Margins and the integration of Youtheory.
  • Adj. Diluted EPS was flat Y/Y at $0.32. 

Cash = $91.4M

Debt & Leases = $345.1M

Net Debt = $253.7M

Net Debt to EBITDA of 1.9x

Slide 4

Looking forward the company reduced the upper end of its guidance from Revenue growth of 28%, now down to 26% and Adjusted EBITDA margins now between 13-16% rather than the previous 13-18%. Management noted that the reason for the trimming of top-end guidance is due to post-pandemic trends the company is seeing in Canada and Internationally as certain retailers manage down their inventory and international markets manage through backlogs of new products regulatory approvals.

Adjusted EPS was also revised downward to a range of $1.56-$1.63 which represents 5% growth (previously expecting 5-11% growth)

On a forward basis the company trades with a P/Adj. Earnings multiple of 16x

And based on its quarterly dividend of $0.19 per share or $0.76 per year, the company’s forward payout ratio is expected to be ~48%.

Slide 5

To conclude, I think that Jamieson is interesting. The company is guiding to grow revenue at a great double-digit pace this year, but reduced the upper end of its guidance and its adjusted earnings profitability.

The balance sheet remains healthy, the yield is attractive and sustainable, the company appears to trade at reasonable multiple, and has a runway of growth opportunities in both the U.S., China, and internationally. We will be digging further into the company.


YSOT Hive Digital Technologies HIVE:TSX|NASDAQ


Hive Digital Technologies symbol HIVE or Hive on both the TSX Venture and NASDAQ is a growth-oriented technology stock in the emergent blockchain industry. The company’s revenue is currently dominated by its Bitcoin mining activities but is also working in the high-performance computing or HPC space. The stock is up 94% year to date trading at $4.07 Canadian and $3.00 US at a market cap of roughly $360 million Canadian and $260 million US.



Bitcoin-related stocks have had a bit of a pick-up in attention recently as Grayscale Bitcoin Trust symbol GBTC on the OTC won its lawsuit to convert its fund to an ETF, and the appeal date passed at the end of the week. Effectively, this sets the way for Spot Bitcoin ETFs in the US market which opens up bitcoin investment for more investors. So, it is a decent time to look if there is value in the space.


3) I will be focusing on the Bitcoin operations as that is what the company’s revenues are based on at this time, but the company has been dipping its toes into HPC since Ethereum mining is no longer an option to use its GPUs. The company is expanding these operations in light of the AI boom requires a large amount of compute, but have not made an impact on the financials at this time.



A quick run-through on the basic structure of Bitcoin mining.  Bitcoin mining is done on application-specific integrated circuits commonly known as ASIC’s which are computing hardware built to be optimized for a specific application or algorithm which is the SHA-256 algorithm for Bitcoin. I will note you can run SHA 256 on anything from an original Gameboy to a smart fridge but those obviously aren’t economical.


A quick look at a simplified structure for any corporate Bitcoin mining operation, there are really 3 requirements for mining, ASICs which can be seen as a capital investment and electricity which can be seen as an ongoing per unit cost, and then the building and location which range from proper Data centers with dedicated electrical infrastructure to modified shipping containers depending on the organization. So marginal profit is when the Bitcoin received is valued at more than the electrical costs, and then to achieve overall profit the sum of the marginal profits needs to cover the ASIC and Datacenter costs plus any additional overhead which is relatively fixed.


For the Bitcoin actually received it depends on the percentage of hash rate or calculations that the miner contributes to the total network which is all miners, the exact number is probabilistic but the numbers we’re dealing with here are generally large enough to have the percentage of hash rate be close enough to the percentage of bitcoin received. Each Bitcoin block is mined every 10 minutes, has a subsidy which is currently 6.25 bitcoin and fees which the users doing the transactions pay. The subsidy halves in size roughly every 4 years, with the next halving due around April 2024, which effectively cuts revenue in half for miners as the fees collected are normally in the single percentage or even under a percent of the total bitcoin received per block.




So, why am I explaining this before even touching the company?


The reason is risks about what the company can control, they can’t control the price of ASICs they follow a market price that is highly variable depending on the price of Bitcoin, and they can influence but cannot control the price of electricity depending on region selection and infrastructure, they can control the type of infrastructure built which influences efficiency and most importantly they are at the whim of the price of Bitcoin which is extremely volatile compared to physical mining operations in gold, copper, or even lithium. There was a high of roughly $68 thousand in late 2021, to a low of $16 thousand roughly a year later, very, very volatile.



So moving on to the actual company.

Per its last monthly update, which most public Bitcoin mining companies release in some form. For September the company produced 259 Bitcoin at an average hashrate of 3.69 Exahash per second, if including its GPU operations which mine other cryptocurrencies at this time the company produced 269.5 Bitcoin for the month and 806.5 Bitcoin for its fiscal Q2 2024 or calendar Q3 2023.



Unfortunately, unlike other miners, HIVE does not release its costs in its monthly reports, but assuming similar costs to its last quarter of $18.7 thousand per Bitcoin, the company will be in the same ballpark for earnings as the average Bitcoin price has been in a similar range, which was an EBITDA of $2.9 million and $5.3 million when adjusted.


I will note that depreciation for Bitcoin miners is meaningless as even used miners assuming working conditions will sell for a similar price as new miners, so the ASICs valuation is dependent on fair market values over accounting depreciation. So GAAP earnings per share aren’t a good metric for earnings and need to be adjusted.


But adjusted EBITDA is still very volatile, $5.3 million in the last quarter, negative $1.4 million negative $1.9 million, positive $22.3 million, positive $11 million, no consistency even quarter of quarter.



Moving to the balance sheet, the company had a net debt & leases position of $30 million, and is holding $59.5 million in digital currencies, almost entirely Bitcoin. So if they were to liquidate its digital assets the company would have a net cash position of $29.6 million, not saying they will but it is a possibility as other companies have.



So, moving onto the valuation which I add has a dozen astrix next to it, as I’m specifically going to use generous adjustments to make a point. So first off we’ll use an adjusted enterprise value which treats its Bitcoin as Cash, not ridiculous but abnormal generous compared to a normal valuation. But looking at trailing adjusted EBITDA is the problem, as I mentioned before the ASIC’s generally trade on fair value so depreciation doesn’t mean much, but the issue here is they remove the effects of impairment in the company’s adjusted EBITDA removing the impact of a core expense which should be included in some manner. But even with that generous valuation, the company trades at 9.4x adjusted EBITDA. Just for comparison price to trailing free cash flow is roughly 90 times but has quirks to its metric as well.



So Our Take,
To summarize with the Bitcoin mining industry as a whole you are really purchasing operationally leveraged Bitcoin, which results in higher equity volatility, but potentially higher returns than Bitcoin itself which traders love, but for long-term investors the risk is astronomical. HIVE is extremely volatile in price and fundamentals as they and the industry are price takers, and even under a generous valuation metric, the company is expensive.



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