A third quarter that was better than he expected has Echelon Wealth Partners analyst Russell Stanley feeling confident about his price target on CanniMed Therapeutics (TSX:CMED).
This morning, CanniMed reported its Q3, 2017 results. The company lost $1.35-million on revenue of $4.8-million, a topline that was 80 per cent better than in the same period last year.
“”We continue to be pleased with CanniMed’s remarkable sales growth as more and more patients and doctors gain confidence in our medical cannabis oils and dried herbal products,” said CEO Brent Zettl. “Producing to pharmaceutical standards in a pesticide-free environment sets a high standard and differentiates our products from others. We are advancing several new growth initiatives, including increasing productive capacity at our main facility in Saskatoon, developing exports in several countries and opening our sights on recreational market opportunities.”
Stanley notes that CanniMed’s revenue of $4.8-million and EBITDA loss of $300,000 bested his expectation of a $3.9-million topline and EBITDA loss of $2.3-million. The analyst characterized the quarter.
“Revenue improved 80% y/y and 29% q/q, driven almost entirely by growth in sales volumes,” he notes. “Revenue on cannabis product sales beat our forecast on the strength of volume sales that were 19% better than expected, offsetting realized pricing that was 1% below forecast. Revenue from cannabis oil products improved to 57% of total revenue, up from 49% in the prior period, reflecting continued improvement in sales mix. Cannabis oil products generate 2x the revenue per gram equivalent as dried flower ($14.13/gram vs. $7.04/gram in Q317), and we view the transition towards higher value products such as these to be a strategic imperative for companies in this space. CMED generates more of its revenue from cannabis oil sales than any other publicly-traded LP, which we view as a demonstrated advantage in developing and monetizing new products. As shown below, the Company showed strong volume sales growth in both product categories, with oil sales more than tripling y/y. The reduction in realized pricing on dried flower was expected, given the imposition of a price cap by Veterans’ Affairs Canada.”
In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $14.00 on CanniMed, implying a return of 55.7 per cent at the time of publication.
Stanley thinks CanniMed will produce an EBITDA loss of $1.9-million on revenue of $16.7-million in fiscal 2017. He thinks those numbers will improve to EBITDA of positive $5.8-million on a topline of $42.1-million the following year.