Valens GrowWorks has a 76 per cent upside, says Mackie Research

Analyst Greg McLeish of Mackie Research Capital Corporation says that recent deals snagged by Valens GrowWorks (Valens GrowWorks Stock Quote, Chart CSE:VGW) are further support for his investment thesis which has Valens rated a “Buy” with a $4.50 target price, representing a projected return of 76 per cent at the time of publication.

“Over the past couple of months Valens has signed four multi-year cannabis extraction agreements with Canopy Growth, Sundial Growers, Harvest One and GTEC Holdings,” says McLeish in a client update on Thursday. “These recent announcements underpin our EBITDA forecasts through F2020 and our thesis remains intact.”

Listed on the CSE in November of 2016, Valens is a research-driven cannabis extraction and manufacturing company with product development and cultivation activities.

The four recent deals are as follows:

• a multi-year extraction services deal announced on November 5 2018 with GTEC Holdings
• a multi-year extraction and product R&D deal announced on November 14 with Harvest One
• a multi-year extraction deal announced on December 13 with Canopy Growth
• a multi-year extraction deal announced on January 21 with Sundial Growers

McLeish notes that Valens has a net cash position of approximately $30 million, stating, “This strong cash position will allow the company to increase extraction capacity at its Kelowna facility, strategically increase its domestic geographic presence and address potential working capital requirements.”

The analyst has accordingly adjusted his forecasts which now call for 2019 EBITDA of $17.1 million on revenue of $35.5 million and 2020 EBITDA of $41.8 million on a top line of $84.3 million. His $4.50 target stems from applying a 12x EV/EBITDA multiple to his 2020 estimate and then applying a 15 per cent discount rate.