A number of factors are leaning Village Farms International’s (Village Farms Stock Quote, Chart TSX, NASDAQ:VFF) way, says Doug Cooper, analyst for Beacon Securities, who on Thursday reiterated his “Buy” rating with a new target price of $32.00 (was $16.00).
On Thursday, vegetable grower turned cannabis producer Village Farms began trading on the NASDAQ, another move forward for the company and one which will dramatically increase investor awareness of the company, says Cooper, whose updated forecasts are now reflecting the market conditions vis a vis VFF.
But along with the listing, Cooper points to the significant supply issues currently faced by the Canadian market, which he believes could last “for a protracted period of time,” and thus will impact selling prices such that the analyst has increased his selling price from $2 per gram to $4 per gram. The higher prices will be a boon to a wholesaler like Village Farms and its 50 per cent owned joint venture, Pure Sun Farms, he says.
“We believe VFF represents the best risk-return in the Canadian cannabis market,” says Cooper. “We believe it remains an ‘unknown’ player despite its potential to be one of the largest players in Canada. (Note as a point of reference, it does not even make it to many peer group valuation tables, likely because it is such an outlier to the downside in terms of valuation.)”
“In a market where Canadian LPs are searching to backfill production (e.g., Tilray’s recent purchase of Natura Naturals in Leamington, Ontario), we find it likely that VFF is on the radar screen of many Canadian LPs who trade at valuations that are multiples that of VFF – and they could get the Texas assets for free,” Cooper says.
Based on the anticipation that Pure Sun Farms will sell 50,000 kg in fiscal 2019 and 75,000 kg in fiscal 2020, of which 50 per cent will accrue to VFF, Cooper is raising his revenue/EBITDA forecast for fiscal 2019 to $295 million/$38.4 million (from $245 million/$28.9 million) and for fiscal 2020 to $345 million/$80.4 million (from $270 million/$41.4 million).