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Buy MediPharm Labs for exposure to cannabis extraction, Mackie Research says

MediPharm Labs

Solid quarterly results from cannabis extraction company MediPharm Labs (MediPharm Labs Stock Quote, Chart TSXV:LABS) are cause for a target raise, says analyst Greg McLeish of Mackie Research Capital, who in a May 13 update reiterated his “Buy” recommendation with the new target price of $7.50 (previously $6.00).

MediPharm reported its first quarter ended March 31, 2019, results last Friday, coming in with revenue of $22.0 million, a 115 per cent increase over the previous quarter, and EBITDA of $4.3 million, representing a 20 per cent margin and a 102-per-cent increase from last quarter and a net loss of $0.6 million or $0.01 per share.

McLeish was calling for a top line of $14.7 million and EBITDA of $3.4 million. The analyst was looking for net income of $1.4 million or $0.01 per share but the company generated a net loss of $0.6 million or negative $0.01 per share. McLeish attributes the loss to a higher share-based compensation expense of $3.9 million, compared to his forecast of $875,000.

The analyst says his thesis on LABS is intact, saying the company has the capacity to enable its extraction clients to be first movers in the high-margin market of cannabis oils soon to grow in Canada with the introduction of concentrates and edibles this fall.

“In Canada, less than 50 per cent of Licensed Producers hold a production license to manufacture cannabis oils. MediPharm’s well-developed extraction strategy and expertise positions them well to capture the growing demand for cannabis derivative products,” McLeish says.

The analyst points out that MediPharm has signed over 20 partnerships with Canadian LPs and has signed over $85 million in private label sales agreements to be delivered over a 15-month period started December 2018. McLeish notes the company’s 18-month contract with industry leader Canopy Growth as proof of the MediPharms’s quality of operations.

McLeish is calling for fiscal 2019 revenue and EBITDA of $106.4 million and $27.5 million, respectively, and fiscal 2020 revenue and EBITDA of $196.4 million and $77.8 million, respectively. His $7.50 target represents a projected return of 20 per cent at the time of publication.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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