Paradigm Capital cuts price target on Canntrust, maintains “buy” rating

Following the company’s first quarter results, Paradigm Capital analyst Rahul Sarugaser has trimmed his target on Canntrust Holdings (Canntrust Holdings Stock Quote, Chart TSX:TRST).

On May 14, Canntrust reported its Q1, 2019 results. The company earned $12.8-million on revenue of $16.9-million, a topline that was up 115 per cent over the same period last year.

“The Canntrust team delivered exceptional operational growth in the first quarter, with harvested production of over 9,400 kilograms. This is a 96-per-cent increase in production over the prior quarter and reflects the impact of the investments made into our facilities, as well as process improvements to increase throughput,” CEO Peter Aceto said.

The analyst says recent highlights for TRST include an increase in capacity he thinks will drive revenue growth, process improvements he expects will drive down costs, and the company’s recent public offering of (US)$170-million. The final point is the explanation for today’s target cut.

Canntrust Holdings Stock Prediction

“We see TRST’s increasing sales volume, growing consumer base, and innovative product mix driving marked near-term revenue growth,” Sarugaser says. “Process improvements are expected to drive costs of sales lower over the next few quarters, resulting in positive EBITDA from Q2/20 onward. Our revised projections (Figures 1–5), which incorporate an increase in shares outstanding by ~36M (from public offering), derive a target price of $15.03, which we round to $15.00 (was $17.00)”

Sarugaser’s new target represented a return of 90 per cent at the time of publication. The analyst maintained his “Buy” rating. His revised estimates have TRST posting EBITDA of negative $17.0-million on revenue of $139.2-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $19.1-million on a topline of $262.6-million the following year.

Canntrust Holdings Company description via Paradigm Capital

CannTrust Holdings (TRST) is a Canadian licensed producer (LP) of cannabis at industrial scale. Founded by pharmacists in 2014, it is a well established and well-respected LP serving Canadian and international markets. With one of the largest registered medical cannabis patient populations of any national producer, and with two active clinical programs—registered clinical trials running in chronic pain and ALS—we see TRST as a global leader in the high-margin medical and clinical cannabis markets.