Bargain hunters in the marijuana space should be interested in Village Farms International (TSX:VFF), says analyst Russell Stanley of Echelon Wealth Partners, who claims that VFF’s 6.9x multiple is a 48 per cent discount compared to its sub-$1 billion market cap peers.
In a client update on Wednesday, Stanley reiterated his “Speculative Buy” rating and $15.00 target price for Village Farms.
Yesterday, BC-based Village Farms announced that its Pure Sunfarms 50/50 joint venture with Emerald Health Therapeutics has received a Health Canada amendment to its cultivation license, now allowing its Delta 3 facility to expand production to 225,000 sq. ft., which should have an annual capacity of 18,750 kg of dried cannabis.
VFF’s management says the company’s 1.1 million sq. ft greenhouse is on track for full cannabis production by the end of the year.
“Leveraging Village Farms’ deep experience designing greenhouse operations globally for high-value crops, Pure Sunfarms has developed the Delta 3 greenhouse to optimize operating conditions for the highest quality and yield with continuous year-round harvesting,” says Michael DeGiglio, Director of Pure Sunfarms and CEO of Village Farms, in a press release. “We are not surprised to see our first commercial-scale crop thriving in this environment and remain firmly on track for our production targets in 2018 and beyond.”
Stanley say his conservative estimates have VFF producing Adj. EBITDA of $4.9 million on $164.3 million in revenue in 2018 and Adj. EBITDA of $40.0 million on a topline of $177.2 million in 2019.
“Though we recently increased our estimates, our forecast remains below management’s stated target,” says the analyst. “Our model assumes just under 4,000kg in 2018 (versus management’s target of 7,000-8,000kg) and just over 39,600kg in 2019 (versus management’s target of 46,000-52,000kg). With the 1st quadrant now approximately half-planted, and the footprint expanding significantly over the next month, the JV appears positioned to exceed our production estimates.”
Stanley values VFF with a 14.5x EV/C2019 EBITDA multiple applied to his estimates. He notes that should the company reach the upper end of management’s target in FY2019, his estimates would support a $19.00 per share price target, rather than the current $15.00, which represents a projected 12-month return of 118 per cent at the time of publication.
The analyst says that currently trading at 6.9x EV/C2019 EBITDA estimates is a 48 per cent discount to the 13.2x multiple of its closest cannabis peers.
Disclosure: Jayson MacLean owns shares of Village Farms International.