Aphria deal with Nuuvera gets thumbs-up at Canaccord Genuity

Canaccord Genuity analyst Matt Bottomley thinks the latest deal from Aphria (Aphria Stock Quote, Chart, News: TSX:APH) allows it to capitalize on its core competencies.

On Wednesday, Aphria announced it had entered into a partnership with Nuuvera Corp that would see the former expand its production around the world, specifically in Europe, Israel and Latin America. The deal will see Aphria invest $2-million in Nuuvera.

“This is an exciting strategic partnership for Aphria and Nuuvera. By combining our unparalled experience in cannabis production with Nuuvera’s extensive international network, we will bring the best of two leaders to meet the growing global demand for cannabis,” said Aphria CEO Vic Neufeld. “This partnership is further recognition by the global cannabis industry of the strength of our greenhouse growing intellectual property, and of Aphria’s strategy to monetize it, in order to create additional shareholder value. We look forward to building a long-term partnership with Nuuvera to create an even more valuable presence in the market.”

Bottomley says this deal makes sense in a couple different ways.

“We believe this deal allows Aphria to monetize one of its core competencies by providing facility design and operational services related to low cost production for future cash flow streams,” he says. “As we expect the entire market to shift to a wholesale model when recreational sales commence, we do not believe the supply commitments noted above will likely be at lower prices than Aphria could otherwise obtain via wholesale distribution. Further, with an influx of LPs and vacant licensed land coming into the market, this arrangement allows the company to receive cash for vacant land today, while maintaining a portion to utilize for future expansion (in addition to its already planned 100,000 kg) on an as needed basis.”

In a research update to clients today, Bottomley maintained his “Speculative Buy” rating and one-year price target of $7.00 on Aphria.

Maruoka thinks Aphria will generate EBITDA of $22.3-million on revenue of $62-million in fiscal 2018. He expects those numbers will improve to EBITDA of $62.4-million on a topline of $174-million the following year.

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