Take a pass on Emblem Corp. right now, GMP says

It’s gone down while its peers have gone up, but GMP Securities analyst Martin Landry says it’s not yet time to buy Emblem Corp. (Emblem Corp. Stock Quote, Chart, News: TSXV:EMC).

With the company’s most recent financing now complete, Landry today, resumed coverage of Emblem Corp. with a “Hold” rating and a one-year price target of $2.00 implying a return of 25 per cent at the time of publication.

Last Thursday, Emblem completed a previosuly announced bought deal that raised $28.8-million for the company. Management said the proceeds would be used for its new 170,000 square-foot facility in Paris, Ontario.

Landry says his newly updated models reflect this financing, but have not made any material impact to his forecast. But the analyst says Emblem does not stack up well against it peers in terms of value right now, and as as such he would stay on the sidelines.

“Emblem’s shares have been relatively weak recently, down 10% QTD vs. a 38% increase for the cannabis sector ETF (HMMJ:TSX), in-part reflecting the company’s past challenges. With capacity expected to remain capped at ~2,000kg until Q1/19, Emblem is not optimally positioned in our view to capture recreational market share. Meanwhile, EMC’s valuation of ~9x CY19 EBITDA remains at a substantial premium to its closest peers. Our target is based on a DCF using: 1) a 12% discount rate, 2) average market share of 3%, 3) average EBITDA margin of 28% (unchanged), and 4) 3% terminal growth.

Landry thinks Emblem will generate EBITDA of negative $8.2-million on revenue of $3.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of negative $1.7-million on a topline of $17.7-million the following year.

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