The Supreme Cannabis Company has 93 per cent upside, GMP says

With a healthy balance sheet and improving results, GMP Securities analyst Robert Fagan thinks The Supreme Cannabis Company (The Supreme Cannabis  Stock Quote, Chart: TSXV:FIRE) is a cannabis stock that should be on investors’ radar.

On Friday, FIRE announced the completion of a $100-million bought deal financing. The company said it intends to use the proceeds to fund existing and planned facilities.

Fagan says after a recent tour of the company’s facility in Kincardine, Ontario he came away impressed with the appearance of its mature plants, and says the company clearly places a premium on producing superior products. He thinks the company has everything a leader in the sector should, except a lofty valuation.

“With better than expected Q4/18 results, and multiple supply contract wins recently, we believe FIRE has shown good execution which combined with apparent strong dried flower demand, bodes well in our view for the outlook. Eleven supply agreements secured for the first year of REC sales have improved visibility, while FIRE’s capacity expansion to 13,330kg before year end underpins the company’s rapid scale-up of operations. Given the above, we consider FIRE’s relative valuation discount (~65%) is too steep vs. peers, and hence could rerate from its current level at ~5x 2020 EV/EBITDA.”

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In a research update to clients today, Fagan maintained his “Buy” rating and one-year price target of $3.50 on Supreme Cannabis, implying a return of 93.4 per cent at the time of publication.

Fagan thinks FIRE will generate EBITDA of $9.0-million on revenue of $54.9-million in fiscal 2019. He expects those numbers will improve to EBITDA of $64.1-million on a topline of $172.4-million the following year.