Aphria (TSXV:APH) is making a mark for itself as a low-cost licensed producer, says Clarus Securities analyst Noel Atkinson.
On Friday, July 8, Aphria reported its fourth quarter and fiscal 2016 results. In the fourth quarter, the company earned $1.3-million on revenue of $2.77-million, a significant over the $499,890 topline the company reported in the same period last year.
The company noted that its all-in cost to sell per gram decreased from $2.22 to $2.07, and its cash cost to produce per gram decreased from $1.67 to $1.15., a development management said demonstrates the company’s “industry-leading low-cost-producer status”.
“With a strong balance sheet supported by a continued and sustainable positive operating cash flow, Aphria continues to be well positioned to capitalize on continued medical cannabis growth, while at the same time prudently planning for potential legalization for recreational use,” said CEO Vic Neufeld.
Atkinson notes that Aphria peers Mettrum (TSXV:MT) recently reported “growing costs” of $2.49/gram and Canopy Growth (TSXV:CGC) stated a “weighted average cost” of $2.69/gram. Aphria is very cheap by comparison, he says.
“Aphria reported preliminary Q4-FY2016 (May) results on July 8,” notes the analyst. “It achieved a record low $1.15/gram cash production cost, a 31% improvement from Q3 and far below any other reporting Licensed Producer (LP) of medical marijuana (MMJ). It also significantly outperformed our $2.00/gram estimate. A key contributor was that Aphria approached full production capacity during the quarter. In addition, we understand high strain quality and optimized growing conditions have driven yield per plant up about 50% year-over-year. We anticipate modest enhancement of production efficiencies in Q1/FY2017 (August), which could allow Aphria’s cash production cost to drop further to as little as $1.00/gram. As such, we believe Aphria has proven its ability to manage the production build out and so has passed a major de-risking milestone.”
In a research update to clients today, Atkinson maintained his “Buy” rating and one-year price target of $2.50 on Aphria.