The most recent run in the share prices of cannabis stocks has made it harder to find stocks that represent value in the sector, but Beacon Securities analysts Doug Cooper and David Kideckel think they have found one.
In a research report to clients today, Cooper and Kideckel initiated coverage of Cannex Capital Holdings (CSE:CNNX) with a “Buy” rating and a one-year price target of $1.80, implying a return of 82 per cent at the time of publication.
The analysts say Cannex, which was founded in 2006 and is based in Washington State, has the potential to be a top cultivator, developer/brander (CPG)
“Cannex, through its strategic tenant Northwest Cannabis in Washington State and its soon-to-be completed acquisition of Jetty in California, has the attributes to be one of the top New Age CPG’s in the United States,” they say. “In particular, in Washington, the company has the #1 or #2 brands in its categories and Northwest has both a very strong distribution breadth and a re-order rate. Jetty has very strong extract brands and also acts as a filler/distribution agent for leading brands in other derived product categories.”
Cooper and Kideckel say growth for CNNX should come both organically and through acquisition.
“We expect Cannex to continue to grow its sales and deepen its brand awareness in Washington and California and to also pursue an M&A strategy to acquire anchor brands in other states,” they say. Despite these strong industry and company fundamentals, Cannex trades at an ~50% discount to its US peers. In our view, the recent price of C$1.00 attributes ZERO value to its pending California acquisition and its entry into the largest cannabis market in the world. Hence, the opportunity for significant share price appreciation when the acquisition closes.”
The analysts think Cannex will generate Adjusted EBITDA of $12.9-million on revenue of $19.0-million in fiscal 2018. They expect those numbers will improve to EBITDA of $16.4-million on a topline of $27.4-million the following year.