A quarter that bested the topline expectations of the street isn’t shaking GMP Securities analyst Martin Landry off his “Hold” rating on Aphria (TSX:APH).
This morning, Aphria reported its Q1, 2018 results. The company earned $15.04-million on revenue of $6.12-million and posted EBITDA of $1.55-million.
“In the first quarter of 2018, Aphria increased revenue and grams sold, and lowered cash costs, in addition to recording our eighth consecutive quarter of positive EBITDA,” said CEO Vic Neufeld. “A key driver of our continued performance has been our ability to maintain leadership as one of the lowest-cost producers in the industry. As legal recreational cannabis comes into market in 2018, low costs per gram will be a critical factor for the entire supply chain. Our proven ability to grow to scale while keeping costs low is an important competitive advantage; it positions Aphria to profitably meet projected demand for cannabis and deliver sustainable value to our shareholders. Looking ahead, we are on track to meet critical short- and long-term goals: Our fully funded facility expansion is well under way, and we expect to achieve further economies of scale once the expansion projects are completed in 2018. Additionally, we continue to develop new product innovations and invest in our recreational infrastructure and brand. This will enable us to serve growing demand from medical cannabis patients in the near term and will eventually support Aphria’s position as a leader in Canada’s recreational market, once federal and provincial regulatory frameworks are in place.”
Landry notes that Aphria’s topline of $6.12-million beat both his and the street’s expectations, but points out that there are some moving parts to the bottom line.
“Operating expenses, especially general and administrative expenses, have increased materially during the quarter, which explains in part the pressure on EBITDA sequentially,” the analyst says. “Aphria seems to continue to experience an erosion in volumes sold to existing patients, given ~10-15% decrease in volume sold to these patients this quarter (excluding the effect the decline related to the changes in reimbursements for veterans). However, we do not think that it is unique to Aphria and believe that it is common in the industry. The company has sold a significant amount of its product wholesale this quarter (22%) which appears much higher than in past quarters. This could suggest that the company’s patient onboarding is not as fast as the increase in production capacity.”
In a research update to clients today, Landry maintained his “Hold” rating and one-year price target of $6.75 on the stock, implying a return of negative 13.5 per cent at the time of publication.