Emblem Corp. gets new $2.00 price target at GMP Securities

Despite second quarter results he describes as “mixed”, GMP Securities analyst Martin Landry has raised his price target on Emblem Corp. (Quote, Chart TSXV:EMC).

On Wednesday, Emblem reported its Q2, 2018 results. The company lost $4.79-million on revenue of $1.5-million, a topline that was a 180 per cent increase over the same period last year.

“Demand for our medical cannabis products significantly increased period over period, further driven by our oil extracts released at the end of 2017,” CEO Nick Dean said. “We have established Emblem as a trusted brand in the medical cannabis space. We are supporting our registered patients with additional cannabinoid oil profiles and new size formats including 30-millilitre bottles, in addition to the original 60 ml bottles. In addition, we anticipate launching our new metered-dose controlled oral sprays during the third quarter of 2018.”

Landry says the quarter didn’t meet his expectations, but says things are fundamentally changing for the better at Emblem.

“The closing of the Natura acquisition could meaningfully reduce the near and longterm uncertainty around production capacity and revenue that has plagued EMC,” the analyst explains. “Additionally, the company continues to make progress towards capitalizing on potential export opportunities in Germany and has upcoming product launches which should enhance the differentiation of its offering and may lead to market share gains.”

In a research update to clients today, Landry maintained his “Buy” rating on Emblem Corp. but raised his one-year price target on the stock from $1.75 to $2.00, implying a return of 43.9 per cent at the time of publication.

Landry thinks EMC will post EBITDA of negative $13.6-million on revenue of $11.4-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $5.1-million on a topline of $47.6-million the following year.

“Our revenue forecasts remain largely unchanged except for the addition of a small amount of incremental revenue from international markets in the second half of FY19. We have brought down our EBITDA margin forecasts to reflect the company’s higher than expected production costs,” the analyst adds.