BANXA Holdings Inc Initiation of Coverage Providing secure access to digital assets Fintech BANXA Holdings Inc (TSX-V:BNXA) is a global Payments Service Provider (PSP) serving the digital asset/cryptocurrency industry. It does so by using its platform as a 3 February 2021 “bridge” between the fiat/cash/banking system and the digital asset/exchange system. Share detail The company is headquartered in Australia where it has pioneered easy to access, TSX-V Code BNXA local payments platforms for retail investors to acquire cryptocurrencies. More recently it has expanded its infrastructure to the B2B market, partnering with the Share price (1 Feb ’21) C$2.10 leading cryptocurrency exchanges, including OK Group, Binance, KuCoin and EDGE Market Capitalisation C$85.5M Wallet. It has also expanded to the UK, the European Union, USA and Canada. Since Shares on issue 40.7M the launch of its flagship B2B product, BANXA has seen significant growth in Total Net cash post IPO ~$6.0M Payments Volumes (TPV), including 1,000% growth in January 2021 TPV to A$55m. BANXA listed on the Toronto Stock Exchange on January 6, through a reverse merger Free float ~65% with Toronto-listed A-Labs Capital I Corp, with a market capitalisation at listing of Upside Case C$40.7m. We initiate coverage of BANXA with a base case discounted cashflow Scalable business model in high growth sector derived valuation of C$3.47/share, which implies a CAGR of 36% in 10-year free Delivering both online and offline payments cashflows, in a sector that is forecasted to generate >50% CAGR over the same period. options to consumers and businesses Delivering compliant, fully regulated blockchain Scope solution to cryptocurrency ownership This report has been commissioned by BANXA to present investors with an explanation of the business model and to explore the value created from a range of possible outcomes. Downside Case Dependent on volumes, clipping a small % of Business model transaction value BANXA earns revenue from commission fees & spread. It is therefore a “flow” based Sensitive to regulation business, similar to international forex companies such as PayPal, TransferWise or Ant Financial and Australian forex companies OFX and EML Payments. It operates in both the Highly fragmented sector B2B and B2C markets. For consumers, the company has pioneered physical point of sale Board of Directors/CEO at listing locations through its partnerships with Australia Post (4,500 post offices) and blueshyft (1,200 newsagents) and online access through its premium branded “bitcoin” domain Domenic Carosa Chairman and Founder names. It has a number of products, including its leading product the BANXA platform, Jim Landau Non-Executive Director which integrates into client/partner platforms - software and hardware wallets, websites Doron Cohen Non-Executive Director and cryptocurrency exchanges. The platform has been built inhouse, and the Intellectual Property (IP) behind the platform, which includes Machine Learning, Compliance, KYC Matthew Cain Non-Executive Director (“Know-Your-Customer”) and Cash Flow positioning, is owned by BANXA and is integrated Holger Arians CEO with a number of specialist data providers. Significant shareholders Base case DCF valuation of C$3.47/share Board & Management 27.0% We have used the discounted cashflow methodology to value Banxa, applying a weighted average cost of capital (WACC) of 13.5% to reflect the high risk/return nature of the Alium Fund 8.0% investment and a terminal growth rate of 2.2%. This derives a base case DCF of NGC Ventures Fund 7.0% C$3.47/share, based on an AUD/CAD exchange rate of $0.98. Our valuation implies a 10- Thorney Investments 5.0% year CAGR in free cashflows of 36%, compared with the forecasted industry growth rate of at least 50% for the same period. We have also examined a more mature group of CCGF Group 3.5% Australian listed fintechs focused on payments to determine an appropriate revenue Company contacts multiple to apply to BANXA. Our analysis yielded an adjusted revenue multiple of 23.4x Domenic Carosa (Chairman) +61 411 196 979 which, when applied to BANXA’s FY20 revenues, delivered an implied peer group valuation [email protected] (WhatsApp) of C$155.3m or C$3.82/share. In our view, continued momentum in BANXA’s total payments volume together with the delivery of stable gross margins should underpin its share price in the short to medium term. RaaS Advisory* contacts Finola Burke +61 414 354 712 Historical earnings and RaaS forecasts [email protected] Year TPV^ Revenue Gross Profit EBITDA NPAT EPS* EV/Sales [email protected] end (A$m) (A$M) (A$m) (A$m) (A$m) (cps) (x) *RaaS Advisory has been paid in shares for 06/20a 69.3 6.8 2.7 (1.0) (2.0) nm 12.6 its research coverage 06/21e 468.6 11.5 8.8 (2.5) (3.5) (6.1) 7.3 06/22e 702.9 17.3 13.9 (0.2) (0.1) (0.3) 4.9 06/23e 1,018.1 24.5 20.1 4.6 3.2 8.0 3.3 Source: Company data and RaaS forecasts *Adj for one time and non-cash items ^Total Payments Volume This report has been prepared by RaaS Advisory Pty Ltd on behalf of BANXA Inc & should be read in conjunction with the disclaimers & FSG on pgs 26-28. Table of contents Scope ............................................................................................................................... 1 Business model .................................................................................................................... 1 Base case DCF valuation of C$3.47/share ................................................................................ 1 BANXA Holdings Inc .............................................................................................................. 3 Investment case ................................................................................................................... 3 Market capitalisation suggests 10-year CAGR in free cashflows of 30% ...................................... 3 History ............................................................................................................................... 4 The Cryptocurrency Market ................................................................................................... 5 BANXA’s business model ....................................................................................................... 9 Banxa’s customer base ........................................................................................................ 10 Competitors....................................................................................................................... 10 Partner and Investor feedback ............................................................................................. 13 SWOT analysis.................................................................................................................... 15 Sensitivities ....................................................................................................................... 16 Board and management ..................................................................................................... 16 Peer Comparison ................................................................................................................ 18 Valuation – ‘the Golden Rule’ .............................................................................................. 21 Application of Golden Rule .................................................................................................. 23 Base DCF valuation of C$3.46/share ..................................................................................... 24 Financial Summary ....................................................................................................................................... 25 Financial Services Guide .............................................................................................................................. 26 Disclaimers and disclosures......................................................................................................................... 28 BANXA Holdings Inc | 3 February 2021 2 BANXA Holdings Inc BANXA Holdings Inc (formerly known as BTC Holdings Pty Ltd) is an Australian/Europe based digital payment service provider (dPSP) focused on bridging the gap between traditional “mass market” financial systems and the digital asset space. The company commenced operations in March 2014 as a bitcoin miner before moving the business model into payment infrastructure and compliance systems to facilitate fiat/cash (currencies such as USD, AUD and CAD) to digital asset conversions. Since inception, Banxa has raised almost A$12m in equity capital from institutional investors, blockchain-focused private equity funds and high net worth individuals.. Banxa raised C$4m, at C$1.00/share, ahead of listing on the Toronto Stock Exchange in September 2020. The market capitalisation at listing was C$40.7m with 40.7m shares on issued at CAD$1 per share. Investment case In our view, Banxa Holdings has the opportunity to achieve success for the following reasons: The company has a demonstrated track record of strong revenue generation and profitability; Its business model is scalable and transferable to new jurisdictions; The company has an established footprint as a digital currency exchange in Australia, delivering easy access to bitcoin to everyday Australians through the network it has created with its partnerships with Australia Post and blueshyft; This local component has been a key competitive advantage to Banxa and one which