Strong new hires at The Hydropothecary Corporation (TSXV:THCX) should provide a boost to the company, says Russell Stanley of Echelon Wealth Partners, who maintains his “Speculative Buy” rating and 12-month target price of $5.50 per share.
Gatinueu, Quebec’s Hydropothecary announced today the addition of three new members to its management team, saying that the new hires strengthen the licensed producer’s leadership in the run-up to rec legalization in Canada, which for THCX will involve supplying Quebec’s main distributor, the SAQ, with 20,000 kg of cannabis a year.
“The addition of a General Counsel, Vice-President of Sales, and Vice-President of Finance is another decisive step in securing our position as Quebec’s cannabis leader and supporting our expansion into Ontario and other markets,” says CEO Sebastien St-Louis in a press release.
In a special situations update to clients on Tuesday, Stanley says the new hires are a boon to the company as it prepares to ramp up from its current annual production of 3,600 kg to a projected 108,000 kg by the end of calendar 2018. “The impressive and experienced group should free up time for senior executives to pursue additional business development initiatives,” says the analyst.
Stanley says that THCX is a relative bargain, trading at 8.7x his C2019 EBITDA forecast. “Hydropothecary continues to trade at a steep 47 per cent discount to the broad peer group average EV/C2019E EBITDA of 16.4x, and a 24 per cent discount to its closest peers at 11.4x,” says the analyst. “Potential catalysts include expansion progress updates, further product development news, a TSX graduation, and improved financial results.”
The analyst predicts 2018 revenue and Adj. EBITDA for THCX of $11.4 million and negative $12.8 million, respectively, and 2019 revenue and Adj. EBITDA of $97.1 million and $15.0 million, respectively.
Stanley reiterates his “Speculative Buy” rating and 12-month target price of $5.50 per share, representing a potential 41 per cent return on investment at the time of publication.