Cannabis extract company PharmaCielo (PharmaCielo Stock Quote, Chart TSXV:PCLO) is ramping up production, which is good news for the stock going forward, says GMP Securities analyst Robert Fagan.
On Tuesday, Fagan reacted to the company’s latest quarterly earnings by maintaining his “Buy” rating and $12.00 target price.
PharmaCielo, which is based in Toronto and has PharmaCielo Columbia Holdings as its principal and wholly owned subsidiary, released its first quarter fiscal 2019 results on Monday.
In the company’s quarterly press release, CEO David Attard said it has made significant progress over the past six months towards generating commercial sales by the second half of 2019.
“2019 will continue to be an exciting year for the Company as we focus on completing and producing out of our new oil production facility, generating initial sales and growing sales channels. We are well-capitalized to achieve our objectives and expect to see sales significantly expand into 2020, driven by value-add product development and activation of our international and Colombian sales channels,” said Attard.
Fagan says the quarterly results are fairly immaterial at this pre-revenue stage, with the company generating an EBITDA loss of $3.0 million, which was stable quarter-over-quarter and slightly better than Fagan’s negative $3.4 million forecast. The analyst pointed out that PharmaCielo exited Q1 with a strong cash balance of $30.7 million, slightly better than his $27.6 million estimate.
“PCLO’s shares have been under pressure recently, in our view mostly due to limited news flow, however we expect this to change over the summer as progress is made on opening distribution channels. To this end, the company’s faster production ramp-up is encouraging, ensuring execution on potential supply contracts, and suggesting the outlook remains solid,” says Fagan.
The analyst says that PCLO increased its cultivation area by 20 per cent over Q1 to about 1.3 million sq. ft and that management expects its nearly-completed processing facility could ramp up quicker than expected and reach annualized processing capacity of about 24 tonnes of cannabis oil by the third quarter of this year.
Fagan notes that PCLO is searching for logistical pathways for distribution in global markets, with test shipments expected in the coming weeks focusing on the US and the European Union. The analyst says that should PCLO succeed in opening a channel to the US, it would “represent penetration of one of the largest global CBD markets sooner than we expected and would likely be well received by investors.”
Fagan thinks that PCLO will generate 2019 revenue and EBITDA of $3.1 million and negative $14.9 million, respectively, and 2020 revenue and EBITDA of $61.3 million and $23.9 million, respectively. His $12.00 target represents a projected return of 80.7 per cent at the time of publication