Aurora Cannabis will soon be EBITDA positive, says GMP Securities

GMP Securities analyst Martin Landry is keeping the faith on Aurora Cannabis (Aurora Cannabis Stock Quote, Chart TSX, NYSE:ACB), despite the company’s lower than expected numbers in its latest quarterly report.

In a Thursday update to clients, Landry has reiterated his “Buy” recommendation and $15.00 target, representing a projected 12-month return of 28.5 per cent at the time of publication.

Licensed producer Aurora delivered its fiscal third quarter 2019 results on Tuesday.

“I’m exceptionally proud of our company and team as Aurora continues to deliver on our domestic and international growth strategy. We achieved solid revenue growth and strong operating results in a quarter proven challenging across the industry,” CEO Terry Booth said. “We are laser focused on building a long-term sustainable business.”

Aurora posted quarterly revenue of $65.1 million, up 365 per cent year-over-year, and an Adjusted EBITDA loss of $36.6 million, compared to Q3/2018’s loss of $12.9 million. Those top and bottom line numbers were lower than the consensus expectation at $68 million and negative $29 million, respectively, and lower than Landry’s call for $74 million and negative $28 million, respectively.

The company has maintained its guidance for positive EBITDA by Q4, which Landry supports, saying Aurora’s sales volume should hit 20 tonnes over the next quarter.

“We believe Aurora is well positioned to achieve positive EBITDA next quarter given that production has been ramping up considerably (harvesting nearly 16 tonnes in Q3, twice as much as the prior quarter) while costs have been declining (reaching $1.42/g this quarter) and the company has remained disciplined on SG&A (up only 4 per cent quarter-over-quarter),” says Landry.

The analyst notes that Aurora registered $4 million in international sales, the highest among LPs that he’s covering, which Landry says speaks to Aurora’s gaining traction internationally and bodes well for the company’s future prospects.

Landry thinks ACB will generate fiscal 2019 revenue and EBITDA of $281.4 million and negative $122.1 million, respectively, and fiscal 2020 revenue and EBITDA of $630.8 million and $103.5 million, respectively. With this update, the analyst is introducing a fiscal 2021 forecast, calling for a top line of $927.9 million and EBITDA of $204.7 million.

“We forecast some EBITDA margin improvement for the company as it continues to scale production and post-harvest processes to drive gross margin improvement. With continued expansion into new markets, we anticipate steady growth in SG&A expenses to support its initiatives,” says Landry.