Canopy Rivers has a 149 per-cent upside, GMP Securities says

Further clarity on the company’s EBITDA potential leaves GMP Securities analyst Martin Landry feeling even more bullish on cannabis sector play Canopy Rivers (Canopy Rivers Stock Quote, Chart TSXV:RIV).

In an research update to clients Wednesday, Landry maintained his “Buy” rating but raised his target price from $7.50 to $10.00, representing a projected 12-month return of 148.8 per cent at the time of publication.

Canopy Rivers recently provided investors with a 2020 outlook, one which calls for $100 million in attributable EBITDA from three of its investees: $50 to $60 million from its 49-per-cent stake in the PharmHouse JV, $20 to $30 million from its 49-per-cent stake in Canapar and $15 to $20 million from its 26-per-cent ownership of Vert Mirabel and the yield from its preferred shares.

The new numbers add to Canopy Rivers’ net asset value (NAV) and point to unaccounted for value in the stock, according to Landry.

“RIV’s CY20 attributable EBITDA guidance brings to light a valuation discrepancy of the company’s investments. Based on yesterday’s closing price, the fully-diluted market cap stands at $800 million with ~$150-million of fully-diluted cash and a ~$150-million stake in TerrAscend based on public market prices. This implies an enterprise value of $500 million for $100 million of attributable EBITDA from three investees, a 5x multiple without including any value from RIV’s 12 other investments. In our view, clarity on 2020 EBITDA potential could improve investors’ understanding of the story and lead to a re-rating in RIV shares,” says Landry.

The analyst’s target price comes from applying a 2.00x multiple (previously 2.25x) to his estimated NAV of $4.88.

“In our view, this premium to NAV is warranted given Rivers’ deployable capital, its affiliation with Canopy Growth and management’s solid track record,” says Landry.

Landry is calling for 2019 operating income of $33.4 million and net earnings of $2.6 million and 2020 operating income of $18.8 million and net earnings of $0.6 million.