Emblem Corp. is now in “deep value territory,” GMP says

Following the company’s third quarter results, GMP Securities analyst Martin Landry has raised his price target on Emblem Corp. (Emblem Corp. Stock Quote, Chart TSXV:EMC).

On Tuesday, Emblem reported its Q3, 2018 results. The company lost $10.84-million on revenue of $2.3-million, a topline that was up 281 per cent over the same period last year.

“This quarter marked a significant period of transformation for Emblem as we strategically aligned the business around our core strengths,” CEO Nick Dean said. “This began with the signing of one of the largest business-to-business cannabis supply agreements, increasing our aggregate annual product supply run rate to approximately 30,000 kilograms beginning in mid-2019. With product volume and cost visibility addressed, management can refocus both human and capital resources on levering core competencies of product innovation, brand building and securing global distribution channels.During the quarter, we began to realize the significant revenue impact of our Symbl brand within the adult-use market as we fulfilled 100 per cent of our provincial commitments, while maintaining product availability for our growing number of registered patients.”

Landry says the quarter bested his expectations on both the top and bottom line. He today reiterated his “Buy” rating while raising his one-year price target on the stock from $2.50 to $2.75. The analyst says the quarterly results, along with a recent share price slide make the stock more than compelling right now.

“Emblem has executed well at the onset of the recreational market, which should reassure investors,” Landry says. “With the recent price decline, its shares have entered deep value territory, trading at less than 5x our 2019 EBITDA estimates, making Emblem one of the cheapest names in the sector. This provides investors with an appealing entry point and limited downside risk in our view. Our target is based on a DCF using: 1) a 10.5% discount rate, 2) 5% average share of the Canadian recreational market (4.5% previously), 3) average EBITDA margin of 22% (23% previously), and 4) a terminal growth rate of 3%.”

Landry thinks Emblem Corp. will post EBITDA of negative $11.7-million on revenue of $8.2-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $16.7-million on a topline of $86.8-million the following year.