Canaccord Genuity has lowered the price target for Silvergate Capital SI, citing its trade at a discount to book value. This comes after the bank released preliminary fourth-quarter results that showed a significant drop in customer deposits.
The Analysis: The investment banking firm in its analysis provided by Joseph Vafi maintained a "buy" rating on SI, and slashed the price target from $150 to $25 — a staggering 83% decrease.
The Thesis: Canaccord said while it had expected deposits to come in, what was surprising was the magnitude of the overall declines, driving a significant deterioration in SI’s book value and reduced forward earnings power.
The brokerage highlighted the resilience of SI’s purpose-built model, which was designed to perform as it should have in a volatile environment after the FTX collapse.
Canaccord's new price target of $25 is based on a 1.3 times multiple of the book value estimate as of the end of 2023. This is based on an expected reversal of SI trading at a discount to book value to a slight premium once the crypto market recovers.
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The analyst note also highlighted that Silvergate wrote down its entire investment into Diem’s stablecoin initiatives, given that there was no clarity to revenue brought in. Silvergate then increased its short-term borrowings, which would affect its net interest margin.
“We believe [the] book value ends up somewhere in the $ mid-teen range exiting 2022. As such SI is likely now trading at a discount to its book value,” Canaccord said.
Silvergate's customer deposits fell 68% to $3.8 billion in the fourth quarter, indicating risk aversion in institutional crypto trading.
Despite the market disruption and the obstacles Silvergate has had to address, the company is still poised to offer abundant liquidity to digital asset customers.
By the end of the quarter, Silvergate had a strong balance sheet with a cash sum of $4.6 billion, exceeding their customer-related deposits. According to Canaccord, if the digital currency markets recover, Silvergate's deposits and revenue will likely follow suit.
Silvergate is a provider of financial infrastructure solutions to the digital asset industry. Some of the most popular digital assets include Bitcoin BTC/USD and Ethereum ETH/USD.
Price Action: SI closed trading at $12.59 on Thursday evening, down 42% in the last 24 hours, according to Benzinga Pro data.
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