Hydro Mining Expansion And AI Data Centers Will Drive Long Term Bitcoin Infrastructure Demand

Catalysts

About DMG Blockchain Solutions

DMG Blockchain Solutions operates Bitcoin mining, digital asset infrastructure and software platforms focused on carbon-aware mining, custody and AI data center services.

What are the underlying business or industry changes driving this perspective?

• Execution of the three exahash non dilutive expansion using hydro mining and vendor agnostic infrastructure should increase self mining scale at attractive energy efficiency, supporting higher revenue and better net margins across future Bitcoin cycles.
• Rising institutional demand for regulated digital asset custody and treasury services, particularly outside the United States, positions Systemic Trust to monetize a largely underserved Canadian and cross border client base, which can diversify revenue and lift overall earnings quality.
• Growing global investment in AI compute and defense-related digital infrastructure, together with DMG’s early relationships in Canadian defense procurement and First Nations partnerships, can translate the prefabricated data center and Malahat projects into long term contracted colocation revenue and improved cash flow visibility.
• Industry migration toward cleaner and more transparent Bitcoin mining, combined with DMG’s integrated Terra Pool, Helm, Reactor and Explorer stack, creates potential for premium pricing and stickier clients, which could expand top line growth and support structurally higher operating margins.
• Improving capital structure through debt reduction and disciplined use of Bitcoin backed financing increases balance sheet flexibility, enabling DMG to acquire next generation miners and AI infrastructure at scale, which can enhance return on assets and accelerate earnings leverage when pricing and network conditions are favorable.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming DMG Blockchain Solutions's revenue will grow by 77.0% annually over the next 3 years.
• Analysts are not forecasting that DMG Blockchain Solutions will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate DMG Blockchain Solutions's profit margin will increase from -36.4% to the average CA Software industry of 11.4% in 3 years.
• If DMG Blockchain Solutions's profit margin were to converge on the industry average, you could expect earnings to reach CA$26.4 million (and earnings per share of CA$0.13) by about December 2028, up from CA$-15.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from -3.2x today. This future PE is lower than the current PE for the CA Software industry at 49.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.08%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Systemic Trust is ramping more slowly than management anticipated, and the long sales cycles, regulatory complexity and intense competition from large U.S. custodians could mean the custody platform never reaches meaningful scale. This would limit diversification of revenue and keep overall earnings and net margins dependent on more volatile businesses.
• The company’s strategy ties a large part of its future to Bitcoin cycles. Management explicitly acknowledges the possibility of a greater than 70% price drawdown after a potential peak, which, combined with rising network difficulty and reliance on nonfirm power, could compress mining margins and materially reduce revenue and earnings in a prolonged crypto downturn.
• DMG’s AI and Canadian defense opportunities remain at an early stage with no definitive contracts, and government procurement is described as slow and bureaucratic. Delays or failures to secure long term AI colocation deals would leave the company with underutilized infrastructure and weaker visibility on future revenue and cash flow.
• The plan to expand to three exahash using debt and Bitcoin backed financing exposes DMG to execution risk on miner procurement, hydro retrofits and vendor performance. Any technical setbacks, cost overruns or adverse changes in equipment pricing could erode return on assets and weigh on net margins and earnings.
• The evolving regulatory landscape for digital assets in Canada, the United States and cross border markets, including potential changes to rules on custody, treasuries and Altcoins, could increase compliance costs or restrict services. This could constrain growth in Systemic Trust, limit the digital asset treasury strategy and put pressure on long term revenue and earnings quality.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$0.83 for DMG Blockchain Solutions based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$1.0, and the most bearish reporting a price target of just CA$0.65.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be CA$231.7 million, earnings will come to CA$26.4 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of CA$0.24, the analyst price target of CA$0.83 is 71.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.