Continuing gross margin compression has PI Financial analyst Bob Gibson feeling a little less enthusiastic about GreenSpace Brands (TSXV:JTR).
On Wednesday, GreenSpace Brands reported its Q1, 2017 results. The company lost $241,000 on revenue of $14.2-million, a topline that was up 55 per cent over the same period last year.
“GreenSpace expects that it will continue to execute on a two-pronged growth strategy,” the company said in the press release announcing its results. “Firstly, the company expects to have a strong and continuing internal brand and product development program. There are currently a number of new product offerings in various stages of development that the company expects to release strategically, to fill gaps in the Canadian natural and organic marketplace, over the next few quarters. Secondly, the tripling in size of the Canadian natural and organic food market over the last decade has been driven by a number of new entrants, creating a highly fragmented competitive landscape. The company hopes to take advantage of this and expects to continue to grow through acquisition by making strategic investments in strong, simple ingredient businesses that would have positive and immediate impacts on revenue, gross margins and profitability. The recently acquired Cedar brand is a perfect example of the type of businesses that the company is looking to acquire on a continuing basis.”
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Gibson says his financial models have changed on GreenSpace because of the dilution fromn the $10.8-million equity offering it completed on August 3, and also to reflect the acquisition of juice company Cold Press on August 17. He notes that the company’s EBITDA figure of $400,000 represented 3.3 per cent margin, down from a 4.3 per cent margin on the same EBITDA number last year.
In a research update to clients yesterday, Gibson maintained his “Buy” rating, but lowered his one-year price target on GreenSpace from $1.95 to $1.80.
Gibson thinks GreenSpace will generate Adjusted EBITDA of $3.5-million on revenue of $63.5-million in fiscal 2018. He expects those numbers will improve to EBITDA of $5.6-million on a topline of $77.4-million the following year.