Digitalization continues to impact our everyday lives in positive ways. Technology has made significant improvements in society’s ability to complete tasks, access information, offer services, and more. One area of the economy that has thrived with digitalization is the financial industry.
Financial technology, or “fintech,” refers to the technology that is used to help streamline and disrupt traditional financial services. Software, algorithms, applications, and other technology now allow consumers to complete run-of-the-mill financial tasks, such as depositing checks, moving money between accounts, bill pay, applying for loans, and more. As fintech has evolved over the past decade, new and emerging technologies and services, such as blockchain and cryptocurrency, are now a part of the ever-growing ecosystem of financial technology.
Despite having been around for over a decade, fintech is still widely considered to be in the early innings of growth. Market research experts see high growth continuing through the foreseeable future for the industry.
According to The Brainy Insights, the global fintech market is estimated to grow from $115.34 billion in 2021 to $936.51 billion by 2030. This represents a compound annual growth rate (CAGR) of 26.2% between 2022 and 2030. The Brainy Insights says the growing adoption of smart devices and increasing access to the internet in developing countries, as well as the rise of digitalization and automation, are listed as drivers of the industry growth.
One company that is building an impressive foundation across the fintech industry is The OLB Group (NASDAQ: OLB).
Overview: The OLB Group
The OLB Group is a New York-based, diversified fintech company, which is focused on e-commerce merchant services, Bitcoin crypto mining, and more. The Company has ten main business subsidiaries that cover merchant services, onmi-commerce, cryptocurrency mining, accepting crypto payments, crowdfunding, and more.
As of the end of 2021, The OLB Group maintained a merchant count of 10,500 on its platform, which completed a total of 28,500,000 transactions valued at $1.35 billion during last year. The Company’s merchants were spread throughout over 130 different industries and sold in all 50 states.
Here are a few benefits of OLB Group’s e-commerce & fintech solutions:
- Zero Capital Investment: OLB’s platform utilizes a software-as-a-service (SaaS) model that allows customers to pay as they go, rather than require a hefty up-front fee or investment.
- No Technology Headaches: Platform and technology are streamlined to ensure that users do not have to be technology pros to build and run their online store.
- Omni Channel: The platform is an Omni application that is available on iPad, mobile, and web applications. This allows users to sell products in a physical retail setting.
- All-in-One Solution: OLB’s platform provides a complete Omni solution for users to build and manage their online stores. This includes integrated payments, logistics, customer acquisition, and more.
- OLB’s Expertise: Backed by 15 years of experience, OLB Group can help users gain the most value from its platform.
- Custom Applications: Users can create customized websites and e-commerce assets to their specific specifications all from OLB Group’s database.
OLB Group: Core Businesses
OLB’s business is quite expansive and covers nearly all aspects of e-commerce. To offer its merchant users the best and latest fintech solutions, OLB continues to build on its platform and portfolio of subsidiaries. Here is a breakdown of OLB’s ten most important core businesses:
- Omnisoft: Cloud-based business management platform that offers Omni-commerce solutions.
- SecurePay: Mobile payment gateway designed to offer secure processing, transmitting, and storing of payment card-related information.
- DMint: Cryptocurrency mining business that aims to build a stout mining operation in the United States using one of the lowest energy costs. DMint is focused on expanding its crypto mining operations, as the subsidiary just recently purchased a property in Tennessee, which has the potential to power up to 9,000 mining machines. The DMint subsidiary is also focused on fully converting its energy consumption to renewable sources by the end of the year.
Currently, OLB says it costs between $11,500 and $12,000 to mine one full Bitcoin. This is an important level to watch, as it represents the break-even level for the company’s crypto mining operations. However, DMint and OLB anticipate the cost to mine one BTC to fall to $8,000 once they have their new Tennessee facility up and running.
- CrowdPay.us: Platform that allows companies and broker-dealers to raise capital in the form of debt, equity, donations, or peer-to-peer lending. Management noted during OLB’s Q2 2022 earnings call that they are working on converting the application process to run completely on the blockchain. OLB is testing out different applications of its platform, such as white-labeling for investment banking.
- Crowd Ignition: Regulation CF equity crowdfunding portal registered with the U.S. Securities and Exchange Commission, as well as a member of FINRA. Like CrowdPay, OLB is working on converting its application process for Crowd Ignition to be on the blockchain.
- Evance: Payment processing solution that enables merchants to accept solutions like Apple Pay, tablet-based point-of-sale, fraud protection, and more. Payments can be accepted online or face-to-face.
- Cardaccept: Allows merchants to offer subscription-based payment processing solutions.
- Cryptoaccept: This allows merchants to accept and integrate cryptocurrency payment processing solutions without taking on the risk of the crypto market.
- DoubleBeam: Comprehensive, cloud-based point-of-sale system.
- OLBit: Cryptocurrency processing application, BitLicense. During OLB’s second quarter 2022 earnings call, management noted they are continuing to progress in their application and paperwork to obtain a coveted New York BitLicense. As the process is quite intensive, OLB says they are continuing to work with reputable outside attorneys to help with the process. Overall, the company anticipates continued paperwork and compliance processing for the next 12-18 months.
Notable Recent News:
August 29, 2022: OLB announced that it has entered into a strategic collaborative agreement with Cuentas, Inc. (NASDAQ: CUEN), which features an exclusive software licensing and transaction sharing agreement between the two fintech companies. Overall, OLB will assist Cuentas with expanding the placement of their payment solutions on point-of-sale devices. In exchange, OLB will be entitles to a revenue share for profits resulting from transactions that made on its platform, which may be rented or sold to Cuentas.
August 16, 2022: OLB’s wholly-owned subsidiary, DMint, entered into a Contract for the Sale of Realty for the purchase of a property. DMint closed on the purchase of 4.73 acres of land and a building located at 565 Industrial Park Dr., Selmer, McNairy County, Tennessee for $408,000.
The site and land are intended to become a cryptocurrency mining and data center, which will be powered by the local grid in the state. DMint’s new location is estimated to have an initial capacity of up to 9,000 crypto mining machines.
August 15, 2022: OLB Group releases second quarter and first half 2022 financial results, which showed continued record revenue growth. For the first six months of 2022, OLB generated total revenue of $17.16 million, which represented year-over-year growth of 239% compared to the first half of 2021. For the first six months of 2022, the fintech company also reported a positive adjusted EBITDA of 745,169, compared to an adjusted EBITDA of -$1.33 million last year.
For the second quarter specifically, OLB Group reported total revenue of $8.37 million, which represents year-over-year growth of over 195% compared to last year’s Q2 revenue result of $2.83 million.
OLB continues to hold no corporate debt (other than an equipment financing lease valued at $700,000), maintains total assets of $43 million, and has strong insider ownership of 32%. The strong financial results give the company an annualized revenue run rate of $36 million for 2022, compared to $9.6 million for 2021.
Another sign of strength is the fact that OLB accounts for 98% of its total revenues from its e-commerce and merchant solutions products. This reliable cash cow of a core business allows OLB to engage in its strategic mergers and acquisitions endeavors to expand into the emerging frontiers across fintech.
July 13, 2022: OLB Group announces the authorization of a share repurchase program to buy back up to 1,000,000 shares of its outstanding common stock. The program authorizes purchases to be made on the open market and on a discretionary basis using existing cash balances.
As of the end of March 2021, OLB reiterates it has no corporate debt and cash-on-hand of $4 million. Insider ownership of stock comes in at an impressive 32% and the company estimates to be cash flow positive by the end of 2022. As of July 7, 2022, OLB had a market cap valuation of less than $14 million and an undervalued price-to-sales ratio of 0.4.
Ronny Yakov, CEO of OLB Group: “Our Board of Directors has authorized this stock buyback to exercise our financial flexibility to buy our common stock from time to time as market conditions warrant. With no outstanding corporate debt and a, historically low, market valuation of 0.4 times projected 2022 revenue of $35 million, the Company sees an opportunity to reduce its shares outstanding at very attractive valuations.”
May 16, 2022: OLB Group releases the first quarter 2022 financial results, which showed record revenue generation during the quarter. For the first three months of 2022, OLB reported a record revenue of $8,786,460 and adjusted EBITDA of $505,583. This compares to revenue of $2,226,404 and adjusted EBITDA of -$689,685 during the first quarter of 2021.
Total assets held by the company expanded to $45 million, including a cash balance of $4 million, as of the end of March 2022. OLB held no debt other than an equipment lease to help finance the purchase of 100 cryptocurrency mining machines for approximately $750,000.
In its outlook for the rest of 2022, the Company estimates revenue from its Bitcoin mining operation to reach a run rate of around $6,500,000 annually, once all the purchased machines are fully operational (end of the second quarter of 2022). Furthermore, management says the revenue run rate from its e-commerce businesses to jump to $36 million annually, up from $10 million last year.
OLB: Key Ratios and Valuation
As is the case in investing, valuation matters. A valuation can help an investor determine if a company is currently being undervalued, overvalued, or fairly valued by the market. While no investment should be made based solely on valuation, it can be an important part of the due diligence process.
In April 2022, The OLB Group received an independent valuation appraisal from Corporate Valuation Advisors, Inc., which calculated the value of the company as of December 31, 2021. Keep in mind, that OLB Group has since closed its acquisition of Crowd Ignition and expanded its crypto-mining operation in Bradford, Pennsylvania since the valuation report was developed.
Corporate Valuation Advisors created valuations of OLB using the cost approach, the market approach, and the income approach. The cost approach is a valuation model that uses the replacement theory as a way to value substitutions. The market approach uses market prices in actual transactions to help estimate an overall market value. This includes totaling selling prices for comparable assets. Lastly, the income approach uses anticipated income from appraised assets to help determine income stream potential. For OLB’s valuation, market and income valuation approaches were the main focus.
Market Approach Valuation
Beginning with the market approach, Corporate Valuation Advisors took 11 publicly-traded companies that are considered to be “peers” of OLB. The firm developed EBITDA and revenue market multiples to compare OLB to its peers.
Here is the specific breakdown and process used by Corporate Valuation Advisors to help determine OLB’s market approach valuation on a one-year and two-year forward-looking basis:
One-year forward-looking multiples for each of the guideline companies are shown below:
In applying multiples to the 2022 revenues and EBITDA of OLB, we made an initial 150% upward adjustment to the multiples to reflect the much higher expected growth rate of the Company. An additional adjustment was made to the revenues multiples to reflect the lower expected profit margin of OLB as compared to the guideline companies. The adjustments made to each multiple and a summary of the selected multiples are shown below:
Based upon the application of the above-described multiples, adding cash and cash equivalents and subtracting the working capital adjustment, business enterprise value indications for OLB range from $248.58 million to $256.90 million, as shown below:
The mean value indication is $252.74 million.
The two-year forward-looking multiples for the guideline companies are shown below:
In applying multiples to the 2023 revenues and EBITDA of OLB, we made an initial 50% downward adjustment to the multiples to reflect the risk of achieving the expected growth rate contemplated in management’s projections. An adjustment was also made to the revenues multiple to reflect the difference in the profit margin of OLB as compared to the guideline companies. The adjustments made to each multiple and a summary of the selected multiples are shown below:
Based upon the application of the above-described multiples, adding cash and cash equivalents and subtracting the working capital adjustment, business enterprise value indications for OLB range from $451.66 million to $454.33 million, as shown below:
The mean value indication is $453.00 million.
To obtain a copy of the full OLB valuation report, please visit https://investors.olb.com/independent-valuation-report/
Income Approach Valuation
The income approach features the use of the discounted cash flow model. In its equation, the firm used the following considerations: an equity risk premium of 6%, a small company risk premium of 5.01%, a 20-year treasury bond yield of 1.94%, and a company-specific risk factor of 25%. The pro forma cash flow for OLB indicated a present value of interim cash flows to be $107.59 million. OLB’s constant growth rate was set at 5%, with future values discounted to prevent value using a 37.2% discount rate. When adding the present value of the sum of OLB’s seven-year cash flows with the present value of the terminal and cash, and cash equivalents, and subtracted by the working capital adjustment results, the model showed OLB with a business enterprise value of $241.06 million.
Overall, Corporate Valuation Advisors found OLB to be extensively undervalued compared to its current market valuation when using the income and market approaches. The market approach provided an average value of $252.74 million and $453 million, based on estimated results for 2022 and 2023, respectively. The income approach, using the discounted pro forma cash flow model, gave OLB a business enterprise value of $241.06 million.
As of this writing in September 2022, The OLB Group has a market cap value of $22.35 million. To add to the undervalued thesis, OLB is trading at almost half of its book value, as seen with a price-to-book value of only 0.57. Price-to-sales is currently listed showing an undervalued reading of 0.7757.
In summary, OLB Group is well-positioned to benefit from the robust estimated growth in the global fintech industry. With an industry CAGR of around 26% throughout the 2020s, OLB Group is in a ripe environment to continue growing revenue and improving its bottom line.
Combining strong financial capitalization along with meaningful subsidiaries and technologies has been and continues to be a key strength for OLB Group. The Company’s no corporate debt on hand is a testament to its organic growth, which drove revenues to record levels during the most recent quarter. Given the current state of OLB, its undervaluation, and the overall industry outlook, investors should not overlook this stock.
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