1/14 A thread on $CND/Circle and why this is now 75% of my portfolio... This is far and away the most overlooked SPAC on the market. Given the updated expectations on Fed rate hikes, the deal, struck back in Jul '21, is currently criminally undervalued. Read on...
2/14 Quick background on $CND: Circle is a USD-pegged stablecoin with $40B+ of collateralized assets in circulation that are used as the underlying casino chips of the crypto market and as an informal stable currency in developing countries.
3/14 $CND biz model is simple- it collects interest from the collateralized assets ($40B+) and is the leading stablecoin that is working with US govt toward formal institutionalization. While the latter part has a signif TAM on its own, lets focus on the interest income aspect...
4/14 $CND projected earnings assumed interest rates of 0.25% in 2022 and 0.80% in 2023 (this is the “base case” referred to later). However, those numbers are from mid '21 and with a more hawkish Fed, current mkt consensus is 4 hikes in 2022 alone.
reuters.com/markets/funds/…
5/14 Why does this matter? For each +50 basis point (bps) increase in interest rates above that base case, $CND interest income increases $235m in 2022 and $555m in 2023. Subtracting 3rd party transaction costs means ebitda increases of $148m and $383m per +50bps increase.
6/14 Now, lets look at what happens to $CND 2022-2023 earnings when we apply updated interest rate values. Here, we’re going to use a “bear case” (light green) of 0.70% in 2022, 1.40% in 2023. We’ll also use a “bull case” (dark green) of 1.00% in 2022, 1.80% in 2023.
7/14 These are the updated revenue projections for $CND using interest rates that are updated to reflect the current Fed stance.
Bear case: 2023 rev +64%. 2023 EV/R 3.1x.
Bull case: 2023 rev +99%. 2023 EV/R 2.6x
8/14 These are the updated EBITDA projections for $CND using updated interest rates. In both bear and bull cases, $CND is profitable in 2022 & 2023.
Bear case: 2023E EV/EBITDA 7.0x
Bull case: 2023E EV/EBITDA 4.7x
9/14 On a forward multiple basis, $CND is trading at a MASSIVE discount by any measure. Despite high-confidence projected revenue CAGR of 250-290%, $CND is still valued at EV/R and EV/EBITDA multiples 50-90% lower than any comparable peer!
10/14 Ok, so yada yada, $CND is a SPAC and will always be discounted right? Wrong. Why?
(a) This deal was struck before Fed turned more hawkish. Had deal been made later in 2021, valuation would have been much higher. We get to benefit from rate hikes by owning $CND.
11/14 (b) $CND is NOT speculative. USDC is incredibly stable: 5th largest coin by market cap and growing steadily over time, even during periods where $btc experience high vol.
12/14 $CND originally projected a 2021 market cap of $35b and beat that by almost 20%. Current mkt cap is $44.5b. Case in point: since yesterday morning, USDC market cap increased by almost a billion...
13/14 $CND trading info: SPAC float of 27.6m shares and has been trading over NAV for months so arbs are out. Stock is optionable and has strangely high short interest (1.43m). Prelim was filed a few months ago and with a 2nd revision in Dec, merger expected to close in Q1
14/14 tldr: $CND is not your typical speculative SPAC. It has an EV of $4.5b and will be generating $644-950m in EBITDA... NEXT YEAR (FY23 EV/EBITDA 4.7 - 7.0x).
This is buying a money printer that is valued cheaper than any bank, fintech, or crypto-focused company.
Disclosure: 75% of my portfolio is currently in $CND shares.
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