In a research update to clients today, Maruoka maintained his “Speculative Buy” rating, but raised his one-year price target on the stock from $3.25 to $3.65, implying a return of 18.5 per cent at the time of publication.
Coming off restriction of coverage following Aurora’s recent $69-million bought deal financing, the analyst says the stock, like other Licensed Producers, has become less risky due to developments at the provincial level.
“Now that we are off restriction on Aurora, we have revisited our valuation to reflect a derisked recreational opportunity following the introduction of retail distribution frameworks by several provinces (including key geographies Ontario and Alberta). In our 11 October 2017 report entitled, “Provincial frameworks de-risk rec valuations”, we lowered discount rates in the recreational models for all covered LPs to reflect this reduced risk. For Aurora, we are lowering our recreational WACC from 18% to 16% and increasing the assumed probability of success from 80% to 90%, consistent with other comparable LPs.”
Maruoka says the financing, and what Aurora plans to do with the proceeds, would make him a buyer of the stock.
“We expect net proceeds will be used to advance Aurora’s differentiated strategy, as well as to fund international expansion; the net impact of these financings is relatively neutral to our valuation ($0.02 dilutive). We would remain buyers of the stock ahead of construction milestones for the Aurora Sky facility and the potential for a German production license over coming months.”
Maruoka thinks Aurora Cannabis will generate Adjusted EBITDA of negative $3.7-million on revenue of $18.0-million in fiscal 2017. He expects those numbers will improve to EBITDA of $34.6-million on a topline of $71.0-million the following year.