Emblem Corp’s short term pain will be long term gain, says PI

Some short term hiccups aren’t shaking PI Financial analyst Jason Zandberg’s belief in the long-term viability of Emblem Corp. (TSXV:EMC).

Yesterday, Eblem Corp. reported its Q1 2017 results. The company posted a loss of four cents and EBITDA of negative $2.2-million on a topline of $900,000.

Zandberg says these were mixed results, as the revenue was a slight beat of the $800,000 he had modeled, but the company missed his targets of a two cent loss and EBITDA of negative $1.6-million.

The analyst says Emblem is currently dealing with a situation in which its yield are improving but its patient numbers are capped. He says this will cause some short term pain.

“The delay in Phase 2 expansion was necessary for long-term success but it comes at a short-term cost,” he says. “EMC is capped for patients until Phase 2 expansion is completed and its initial harvest is completed and cured. We estimate that additional product won’t be available until Q4. Furthermore, first quarter revenue was supplemented by inventory but EMC’s inventory was low heading into Q2 so we expect lower sales volume in Q2 and Q3.”

But Zandberg says the bigger picture is looking bright for Emblem.

“We continue to believe that Emblem has a strong medical MJ strategy and with additional expansion plans announced recently, its recreational strategy looks promising,” adds the analyst. “Although we expect a short-term stall in revenue we believe its long-term outlook remains intact.”

Zandberg today maintained his “Buy” rating and one-year price target of $3.75 on Emblem Corp.

The analyst thinks Emblem will generate EBITDA of negative $7.47-million on revenue of $4.50-million in fiscal 2017. He expects these numbers will improve to EBITDA of positive $3.28-million on a topline of $20.4-million the following year.