Mettrum Health gets price target raise to $4.25 at PI Financial

A property sale that fortifies medical marijuana player Mettrum Health’s (Mettrum Health Stock Quote, Chart, News: TSXV:MT) balance sheet has PI analyst Jason Zandberg feeling more optimistic about the company’s future.

This morning, Mettrum Health announced it had entered into an agreement to sell one of its facilities for $7-million in cash. The company said it also negotiated a supply agreement with buyer Cannabis Care Canada that it expects will generate as much as $40-million in revenue.

“Given the scale of our operations at Bennett Road South and Creemore, it was very timely to find a purchaser for Bennett Road North who is also a great strategic partner,” said CEO Michael Haines, chief executive officer of Mettrum. “We are extremely excited to enter into this agreement which does three important things for Mettrum. First, it allows us to continue to lower operating costs by streamlining and consolidating our operations at our new headquarters. Second, it strengthens our already robust balance sheet in a non-dilutive manner. Lastly, and most importantly, it greatly enhances the scale of our business through our supply agreement and access to a new market with Cannabis Care Canada Inc.”

Zandberg says there is little to no downside to this deal, as Mettrum’s expansion plans were aimed entirely at the Bennett South facility, which it will retain. He says the the proceeds from this sale can be used to accelerate those plans.

“The infusion of cash adds to our confidence behind MT’s expansion plans which include increasing annual capacity to 26,000kg/year by March 2018,” says Zandberg. “The supply agreement represents an additional channel of sales that Mettrum will have the production capacity to support. Although this is a three-year agreement, we expect the majority of the sales to fall into FY18 and FY19.”

In a research update to clients today, Zandberg maintained his “Buy” rating, but raised his one-year price target on Mettrum Health from $3.50 to $4.25.

Zandberg thinks Mettrum will generate an EBITDA loss of $1.31-million in fiscal 2017 on revenue of $21.27-million. He expects these numbers will improve to positive EBITDA of $11.78-million on revenue of $54.66-million the following year.