Medipharm gets price target raise at PI Financial

Better than expected gross margins over its fourth quarter are a reason to celebrate Medipharm Labs (Medipharm Labs Stock Quote, Chart TSXV:LABS), says analyst Devin Schilling of PI Financial, who on Wednesday upped his target price a buck from $4.25 to $5.25.

Cannabis extraction company Medipharm released its Q4 and year end 2018 financials on Wednesday, generating revenue of $10.2 million and EBITDA of $2.1 million.

“2018 was a breakthrough year for MediPharm Labs,” CEO Patrick McCutcheon said in a press release. “We became the first fully Licensed Producer to specialize solely in extraction and quickly scaled operations to emerge as the dominant market leader in the manufacturing of high quality, pharmaceutical-like production of cannabis derivative products – the future of cannabis.”

Schilling notes that since Medipharm only received its sales licence in mid-November, prior comparables are irrelevant at present. At the same time, LABS’ results for Q4 were above his forecasts of $10.0 million in revenue and an EBITDA loss of $0.8 million. The company’s EPS of $0.01 per share was also above Schilling’s estimate of negative $0.01 per share.

“Revenue during the quarter consisted of wholesale bulk crude cannabis oil with the majority we believe going to Canopy Growth Corp. MediPharm received its sales license in mid-November resulting in approximately one month of sales during this quarter,” stated Schilling in an update to clients.

The analyst points to the company’s gross margins which were 39 per cent, well above his 22 per cent estimate, while Schilling nonetheless expects margins to be lumpy over the next few quarters before Medipharm introduces its higher margin private label services during the second half of 2019.

“We are forecasting revenue of $100.4 million and $138.3 million in FY19 and FY20 respectively (previously $86.2 million and $137.1 million). Our EBITDA forecast is $21.1 million and $41.5 million in FY19 and FY20 respectively (previously $7.6 million and $31.6 million). The increase in our estimates reflects the companies stronger than expected margins and faster than expected procurement of dried cannabis,” says Schilling.

The analyst is maintaining his “Buy” rating with a “Speculative” risk rating while increasing his target to $5.25, representing a projected return of 42.3 at the time of publication.