In a research update to clients today, Landry upgraded ACB from “Hold” to “Buy” and raised his one-year price target on the stock from $9.50 to $15.00, implying a return of 41 per cent at the time of publication.
The analyst says there are four specific reasons for today’s action, including what he sees as the increasing likelihood of strategic partnerships.
“Aurora announced the appointment of Nelson Peltz as strategic advisor to pursue potential partnerships for the company. Nelson Peltz is the CEO and Founding Partner of Trian Fund Management, L.P., a multi-billion dollar investment management firm with a history of activist campaigns. Trian has been involved with a number of CPG companies such as PepsiCo, Dr Pepper Snapple, Procter & Gamble, Kraft Foods, Heinz, Mondelez, among others. We believe he could be instrumental in facilitating discussions with large CPG companies.”
Second, the analyst says ACB’s fully licensed facilities should alleviate concerns about inventory.
The analyst also thinks there is now visibility on Aurora’s profitability. He believes the company has the potential to generate a billion in revenue with more than $250-million in EBITDA.
Lastly, Landry notes that ACB’s international expansion is in full gear.
“Aurora announced recently that it has started to ship cannabis oils to pharmacies in Germany. With two facilities EU Good Manufacturing Practice certified (Mountain and Markham) and a combined production capacity of 12 tonnes, ACB is well positioned to continue to benefit from high international selling prices. Recently, Aurora also expanded into Portugal with the acquisition of 51% in Gaia Pharm Lda, a license applicant in Portugal.”
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Landry thinks ACB will generate EBITDA of negative $99.2-million on revenue of $324.5-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $99.1-million on a topline of $654.6-million the following year.
“Our target is based on a DCF assuming: (1) a 7.5% discount rate, (2) average market share of the domestic recreational market of 23%, and (3) EBITDA margins of 36% (31% previously),” the analyst adds.
Below: Site Visit: Aurora Cannabis Inc (TSE:ACB) Launches Best-in-Class Aurora Sky Facility
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