In an equity research update to clients on Monday, Landry said low sales volumes reported by Health Canada in the January and February rec cannabis channel are cause for a reduction in his revenue forecasts for Aurora, which is expected to report its Q3 fiscal 2019 on May 14. He is now calling for a Q3 top line of $74 million instead of $91 million.
As for the supply shortages being experienced across the country, Landry says inventory availability at online stores improved between the calendar fourth quarter of 2018 and this year’s Q1, which could mean that provinces will begin to lift their caps on retail licenses in the near term, allowing for a boost in sales growth.
Landry thinks Aurora is likely to have its first-ever positive EBITDA quarter in its fiscal Q4 and states that based on available data Aurora has been the best performer on inventory availability in Ontario, Quebec and Alberta combined, with over 25 per cent of the share of in-stock SKUs since the start of 2019.
“While we are reducing our near-term forecasts, we continue to believe Aurora is well positioned to be a leader in the cannabis market domestically and abroad over the long-term. Our target is based on a DCF assuming: (1) a 7.5 per cent discount rate, (2) average market share of the domestic recreational market of 23 per cent, and (3) EBITDA margins of 36 per cent,” says Landry.
The analyst is calling for fiscal 2019 (year end June 30) revenue and EBITDA of $$289.7 million and negative $109.6 million, respectively (previously $34.5 million and negative $99.2 million, respectively). Landry is maintaining his “Buy” rating and $15.00 target, which represents a projected return of 27.1 per cent at the time of publication.
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