With its share price down 60 per cent from its January high, Martin Landry of GMP Securities says that it’s time to revisit marijuana stock Aphria (TSX:APH), whose expansion plans in the lead-up to rec cannabis are proceeding smoothly, he says.
In a client update on Monday, the analyst maintained his “Buy” recommendation and $20.00 price target for APH.
Landry recently visited Aphria’s Leamington, Ontario, site and came away impressed with a number of factors, including the high level of automation incorporated into its phase 4 expansion of 700,000 sq. ft. facility.
“Aphria is one of few licensed producers that will use robots throughout the whole cultivation process, from sticking the cuttings into a rock wool cube for rooting all the way to harvesting with robots cutting the stems,” says Landry. “Phase 4 is designed so that pots will always stay on the same table and the tables will automatically move from one section to the next. Management estimates that phase 4 will need 50% less labour per plant than the company’s first generation cannabis greenhouse in phase 1.”
Landry says that Aphria is the only publicly traded LP to record positive adj. EBITDA over their Q1 calendar quarter and that the company is set to make use of the retail experience gained by its investee Liberty Health, which plans to have up to ten dispensaries in operation in Florida before the year end. The company is also solidifying its international growth through the addition of Nuuvera, he says.
“Our visit gave us confidence that Aphria can bring its ‘all-in’ production costs below $1.00/g at full scale, given the high level of automation planned. We also consider that APH is one of the best prepared to scale up and face significantly higher volumes with little impact on operations,” he says.
The analyst says that APH is trading at about 14x its CY19 EV/EBITDA, which is at a 15 per cent discount in comparison to its senior licensed producer peers.
Landry’s $20.00 target represents a projected 12-month return of 103.9 per cent at the time of publication.