With a swirl of activity around its stock, Echelon Wealth Partners analyst Russell Stanley has become more bullish on CanniMed Theapeutics (TSX:CMED).
On Thursday, CanniMed issued a press release in which it said it had received a recommendation from proxy advisory firm Institutional Shareholder Services, advising shareholders to vote for the acquisition of Newstrike Resources.
The advisor also warned against the Aurora Cannabis hostile bid, offering that “a $24 offer cap that has effectively halved the exchange ratio and CanniMed’s expected ownership stake in the combined entity — turning the transaction into a dilutive one for CanniMed shareholders.”
“We are pleased that ISS has recommended shareholders vote in favour of the Newstrike acquisition,” CEO Brent Zettl said. “We thank our shareholders for their ongoing support and unanimously recommend they follow the recommendations of ISS and the board, by voting for the acquisition of Newstrike and saying no to Aurora by not tendering and not voting on the blue proxy.”
Stanley says that while shares of CanniMed have had a great run, they still aren’t being properly valued.
“While CMED has climbed 82% since November 10 – the week before ACB and CMED announced their respective acquisition plans – we note that it still trades at a 16% multiple discount (17.2x based on consensus vs. 20.5x), which is not too far removed from the 21% multiple discount it was trading at (8.8x vs. 11.1x) on November 10,” the analyst says.
In a research update to clients today, Stanley maintained his “Speculative Buy” rating on CanniMed, but raised his one-year price target on the stock from $24.00 to $30.00, implying a return of 19 per cent at the time of publication.
Stanley thinks CanniMed will generate Adjusted EBITDA of negative $1.7-million on revenue of $16.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $5.8-million on a topline of $42.0-million the following year.
“Our valuation approach is unchanged, with our target price increase driven by upward revisions to our revenue and EBITDA estimates for the existing business (we do not yet include any contribution from the potential HIP acquisition in our model),” the analyst adds. “The Company has recently announced a distribution agreement that should drive sales penetration in Germany as well as other markets, and Institutional Shareholder Services (ISS) has recommended that shareholders approve the proposed HIP transaction. Additional potential catalysts for CMED include further M&A developments, improved financial results, expansion updates, and international initiatives.”