The Hydropothecary Corp. (TSXV:THCX) is a Licensed Producer with a compelling growth profile and an attractive valuation, GMP Securities analyst Martin Landry says.
In a research report to clients today, Landry initiated coverage of The Hydropothecary Corp. with a “Buy” rating and one-year price target of $7.00, implying a return of 81.8 per cent at the time of publication.
Landry says The Hydropothecary Corp. is an innovation leader that is on the brink of success.
“Through two transformational expansion projects expected to boost production by a factor of 30x, the company is transitioning from a mid-tier producer with capacity of 3,600kg, to a top-tier, industrial-scale producer with a potential output of 108,000kg.,” the analyst says. “We believe this could position THCX within the industry’s top 5 largest producers by CY20, enhancing the company’s ability to capture sizable share in the recreational market, which we forecast to reach ~9% in CY19. We note THCX’s expansion should be fully funded, assuming some proceeds from the company’s ~$85m of currently in-the-money warrants and options.”
Landry says he expects The Hydropothecary Corp. will generate a three-year Compund Annual Growth Rate (CAGR) of more than 285 per cent, more than double the 125 per cent average for the industry leadership group.
Landry thinks The Hydropothecary Corp. will generate EBITDA of negative $8.4-million on revenue of $9.6-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $5.1-million on a topline of $69.6-million the following year.
Despite this anticipated growth, the analyst says the stock is very reasonably priced.
“Despite a strong growth profile relative to peers, we estimate THCX is trading at ~6.5x CY19 EV/EBITDA (pro-forma expansion plans) providing an attractive entry point for investors in our view,” Landry says.