Paradigm Capital is bullish on Knight Therapeutics

A third quarter that came in better than he expected has Paradigm Capital analyst Christopher Lam raising his price target on Knight Therapeutics (Knight Therapeutics Stock Quote, Chart, News : TSX:GUD).

On November 10, Knight reported its Q3, 2016 results. The company earned $5.69-million on revenue of $1.89-million.

“In the third quarter of 2016, we continued to make GUD progress toward building Knight into Canada’s leading speciality pharma company by increasing revenues and growing our pipeline,” said CEO Jonathan Goodman. “Moreover, we bolstered our management team with the addition of Samira Sakhia as president, who brings 14 years of successfully commercializing pharmaceutical products in Canada to Knight’s roundtable.”

Lam notes that Knight’s earnings of $0.04 and revenue of $1.9-million bested his expectation of $0.03 a share in earnings and $900,000 in revenue.

With a lot of cash to deploy, Lam says the market’s expectations around M&A for Knight are extremely high and thinks management can deliver. He says the addition of Samira Sakhia brings a winning team back together and completes what he believes is “one of the most well-rounded management teams” in the business.

In a research update to clients today, Lam upgraded his price target on Knight Therapeutics, while maintaining his “Buy” rating on the stock.

“We have updated our valuation methodology to reflect the full deployment o Knight’s $558M in uncommitted capital,” said the analyst. “This reflects our long-term view of the company and the transition to a true specialty pharmaceutical company. As such, we are increasing our target to $11.50 (from $9.00), based on a sum-of-parts valuation of $9.02/sh for the core pharmaceutical business, $0.85/sh for the loan book, $1.06/sh for its fund investments and $0.60/sh for its equity investment in Medison.”

Lam thinks Knight will generate negative EBITDA of $6.3-million on revenue of $5.7-million on fiscal 2016 and then negative EBITDA of $6.5-million on a topline of $6.5-million the following year.