Emblem Corp. has 91% upside, Echelon Wealth Partners says

Despite Q2 results that fell below his and consensus expectations, Echelon Wealth Partners analyst Russell Stanley is still bullish on Emblem Corp. (TSXV:EMC Quote, Chart).

This morning, Emblem reported its second quarter results. The company lost $4.79-million on revenue of $1.5-million, a topline that was up 180 per cent over the same period last year.

“I’m pleased to report a robust second quarter with substantial progress in sales, patient counts, capacity, distribution and product development,” CEO Nick Dean said. “We remain steadfastly focused on executing against our plan and building a sustainable business that will drive long-term value for our shareholders. Our second quarter results are a testament to this mission.”

Stanley says despite the fact that the quarter fell below his expectation of an EBITDA loss of $2.2-million on revenue of $2.7-million, there were some positives to take away.

“A large portion of the revenue miss can be attributed to sales volumes below our forecast (148kg vs. 371kg),” the analyst explains. “However, the blended realized price of $8.27/gram improved 9% over $7.56/gram in Q118, reflecting strong penetration of cannabis oils, which contributed 39% of revenue from patients during the quarter. EMC produced revenue per gram of $10.17/gram on sales direct to patients, as opposed to wholesale revenue, which generated a blended realized price of $6.01/gram.”

In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $2.50 on Emblem Corp., implying a return of 91 per cent at the time of publication.

Stanley thinks EMC will post an Adjusted EBITDA loss of $17.6-million on revenue of $8.9-million in fiscal 2018. He expects those numbers will improve to an EBITDA loss of $2.4-million on a topline of $34.1-million the following year.

“As with most cannabis companies, EMC is ramping up infrastructure investments, reflected by increased SG&A, in advance of the October 17th opening of the recreational market,” the analyst adds. “We expect expenses to continue to climb in the interim until revenue from recreational sales begins to outstrip expense growth.”