Strong growth prospects and expertise in the extraction business make Neptune Wellness Solutions (Neptune Wellness Solutions Stock Quote, Chart TSX:NEPT) a sleeping giant in the cannabis industry, says GMP Securities analyst Martin Landry, who on Tuesday launched coverage with a “Buy” rating and price target of $7.00.
Sherbrooke, Quebec’s Neptune Solutions was historically a krill oil extraction business which, following a strategic review in 2017, switched to cannabis. The company runs a 50,000 sq ft facility recently licensed by Health Canada, with the company starting up its cannabis extraction last month.
Landry says the company’s large industrial-scale ethanol extractor can process up to 6,000 tonnes of raw material, making it roughly ten times the combined capacity of the two other public cannabis extraction companies, MediPharm Labs and Valens GroWorks.
“The Canadian cannabis extraction industry is at an inflection point with demand expected to increase significantly with the arrival of edibles this fall. With its facility already licensed and in operation, Neptune is well positioned to benefit from this increased demand. We expect the company to double its revenues in fiscal 2020 and to again double in fiscal 2021 to reach $124 million,” writes Landry.
The analyst likes Neptune’s “unique” partnership with global pharmaceutical company Lonza to produce cannabis capsules, which gives Neptune the ability to offer turnkey solution to its clients. As well, Landry gives praise to the company for its expertise, pointing out that Neptune currently generates $24 million in revenue from providing turnkey solutions for functional ingredients such as omega-3.
“The company sources, formulates, customizes and performs quality testing for its customers. This expertise in white label services combined with Neptune’s 15 years in the nutraceutical industry gives the company a competitive advantage in building a cannabis white label business,” he says.
Landry thinks that NEPT will generate 2019 revenue and EBITDA of $25.3 million and negative $8.4 million and 2020 revenue and EBITDA of $65.1 million and $15.2 million. His $7.00 targets translates into a projected return of 53.2 per cent at the time of publication.
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