Its stock has been on a strong run for much of 2016, but PI Financial analyst Jason Zandberg thinks there is still upside in Organigram Holdings (Organigram Holdings Stock Quote, Chart, News: TSXV:OGI).
This morning, Organigram announced it had acquired a property adjoining its current one in Moncton, New Brunswick. Management said it needs the extra real estate to expand its growing operations.
“This month has been transformational for Organigram and is a demonstration of the company’s disciplined approach to business development,” said CEO Denis Arsenault. “With the closing of our bought-deal financing last week, Organigram became financially positioned to expedite and execute our expansion strategy. This property acquisition represents the next step in that process and enables us to achieve our expansion goals while maintaining the regulatory and operating benefits of being situated on one property. By adding this incremental acreage, Organigram more than triples our potential operating footprint, more than quadruples our potential production footprint, and provides the necessary flexibility for phased growth and development of our commercial-scale extracts production and processing platform.”
Zandberg says the pickup of the land and building, which he estimates Organigram snagged for approximately $8-million, mean the company can begin to scale.
We believe OGI can greatly expand its capacity within the new space,” says the analyst. “We expect capacity could increase by 3x in the short term (within one year), which will put the Company in a much stronger position to fulfil demand expected from the upcoming recreational market (we assume the timing for recreational sales to be mid-2018).”
Zandberg says today’s actions sent him back to the drawing board on his models.
“We have increased our FY19 revenue and EBITDA estimates to reflect the additional capacity potential (we had already assumed some expansion but this transaction adds further capacity),” says the analyst. “OGI’s FY19 begins on September 1, 2018, shortly after our assumption for the start of recreational sales. Our FY19 revenue and EBITDA estimates are now $78.9M and $24.5M, respectively (previously $74.1M and $23.0M).”
In a research update to clients today, Zandberg maintained his “Buy” rating and one-year price target of $2.25 on Organigram Holdings.
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