A listing on the New York Stock Exchange could help CannTrust Holdings (CannTrust Holdings Stock Quote, Chart: TSX:TRST) close the valuation gap between it and its peers, says Beacon Securities analyst Russell Stanley.
This morning, CannTrust announced it had shipped CBD oil capsules to Australia’s Gold Coast University Hospital, where they will be used in an ALS study. The company says it is dedicated to exploring the medicinal value of its cannabis products.
“With our medicinal cannabis experience and over 50,000 patients enrolled over the past five years, we continue to see the medical potential of the cannabis plant,” CEO Peter Aceto said. “We are committed to being international leaders in the generation of scientific evidence proving the medical benefits in treating a variety of indications. With hundreds of thousands of people living with ALS in Canada and globally, we continue to focus on improving peoples’ lives around the world. We also thank PharmaCann for its expertise and assistance in importing our products to Australia, to make this study possible.”
Stanley notes that the the CBD strain that will be used in the study was developed by CannTrust from its proprietary genetics, meaning the results will be specific to the company. The analyst says he believes traditional dried cannabis will become increasingly commoditized, meaning product innovation will become more important. He also believes the prospect of a New York Stock Exchange listing will help close what he sees as a valuation gap between the company and its peers.
TRST continues to trade at approximately 8x EV/2020E EBITDA based on our forecast, representing a 37% discount to the broad peer group multiple of 12x, and an 80% discount to the 38x average amongst those with a $1B+ market capitalization (based on consensus estimates),” Stanley says. “We believe a NYSE-listing, which management recently announced it has begun work towards, would significantly expand the investor audience and support multiple expansion for TRST. Companies with a US listing now trade at approximately 71x 2020E EBITDA, based on consensus expectations.”
In a research update to clients today, Stanley maintained his “Buy” rating and one-year price target of $21.00 on CannTrust Holdings, implying a return of 144 per cent at the time of publication.
Stanley thinks CannTrust will generate Adjusted EBITDA of $7.9-million on revenue of $67.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $51.1-million on a topline of $175.8-million the following year.