Nuuvera acquisition is a win for Aphria, Canaccord Genuity says

Aphria Inc.’s (Aphria Stock Quote, Chart, News: TSX:APH) pickup of Brampton, Ontario-based Nuuvera will benefit the cannabis producer through expanding its international reach, says Matt Bottomley, analyst with Canaccord Genuity, who in a Tuesday note to clients reiterates his “Speculative Buy” rating and one-year price target of $26.50 for APH.

Last week, Aphria reported the completion of its previously announced acquisition of Nuuvera, a company with no experience in the cannabis industry but with personnel reportedly experienced in the pharmaceutical and online gaming sectors.

The approximately $425 million deal (involving about $50 million in cash and $375 million in Aphria shares) was made to bolster Aphria’s international presence, according to the company, which on Tuesday announced that Nuuvera will remain a subsidiary of Aphria now renamed Aphria International

“Today, Aphria is affirming its place as a global leader in medical cannabis, with the resources and vision for sustained growth in markets around the world,” said Vic Neufeld, CEO of Aphria in a press release. “We’re excited to unite under one name Aphria’s unparalleled ability to grow low-cost, high-quality cannabis at scale with Nuuvera’s expansive international network, expertise and access to established medical cannabis markets.”

Bottomley sees the deal as helping to give Aphria a competitive advantange in the international medical marijuana market.

“We believe this deal provides Aphria with what could now be the largest international footprint in the industry, as well as increased technological proficiency in extraction, distillation and processing,” says the analyst. “Further, we believe Nuuvera has assets in place that could be meaningful contributors over the near to medium term.”

Shares of Aphria have declined by more than 25 per cent since late January, with a further drop off during the past week, attributed to revelations that four executives and three other directors at Aphria owned shares in Nuuvera Inc. at the time of the deal but did not disclose that information to shareholders.

Yet, Bottomley argues that as the total shares under question amount to less than one million (equalling less than one per cent of Nuuvera), the issue is immaterial and should have no bearing on the underlying fundamentals of the deal.

At the same time, the analyst says that at its current valuation, Aphria is a good buy.

“With a sizable share price reduction as of late, we continue to believe that Aphria remains one of the more attractive large cap LPs on its relative valuation, with a two-year fwd EV/EBITDA multiple of 12.1x (versus its most comparable peers at 19.5x) and we would remain buyers of Aphria at current levels,” says the analyst.

Bottomley’s $26.50 target price represents a 105 per cent potential return on investment as of publication date.