Despite a quarter that he felt showed “mixed” results, Mackie Research Capital analyst Neal Gilmer today raised his target price on marijuana player Mettrum Health (Mettrum Health Stock Quote, Chart, News: TSX:MT), citing heightened potential for expansion and customer acquisition.
On Tuesday, Mettrum Health reported its Q2, 2017 results. The company lost $1.9-million on revenue of $4.79-million, a 180 per cent topline increase over the $1.71-million the company posted in the same period a year prior.
“During the second quarter, we experienced solid growth in terms of sales and client acquisition,” said CEO Michael Haines. “We focused on capacity expansion, transitioned most of our operations to our newest facility and significantly improved operational efficiencies, which, while not evident in our Q2 results, are already driving improved margins and accelerating sales. Looking ahead to the balance of the fiscal year and beyond, our capacity to service the needs of our growing client base, combined with our ongoing expansion of Bowmanville South, leaves us very well positioned for continuous and sustainable growth within this accelerating medical cannabis market and prepared for the impending recreational cannabis market.”
In a research update to clients today, Gilmer maintained his “Speculative Buy” rating on Mettrum Health, but raised his one-year price target on the stock from $3.80 to $8.00, implying a return of 30 per cent at the time of publication. Gilmer explained the reasons for his price target raise in the face of a quarter that in some ways fell below his expectations.
“Mettrum’s quarterly results were below our expectations however investors are less focused on current quarterly results,” says the analyst. “The current theme, in our view, is on the ability to expand and acquisition of patients. While we found the results disappointing, we were encouraged by the company’s acquisition of Apollo. Adding 5,400 potential patients will help fuel demand growth as the company builds expanded capacity. The interest in the marijuana space has hit new highs recently with all of the publicly traded names rising to new highs. Investors are clearly valuing the companies based on future growth and earnings potential in a recreational market. As a result, we have published our F2019 estimates and have moved our valuation period to F2019 (from F2018). We now value Mettrum using a 12x multiple on our F2019 EBITDA estimate.”
Gilmer believes Mettrum Health will generate EBITDA of negative $2.5-million on a topline of $22.5-million in fiscal 2017. He expects these numbers will improve to EBITDA of $14.4-million on revenue of $53.8-million the following year.
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