Licensing delays have caused a dip in his forecasts for Neptune Wellness Solutions (Neptune Wellness Solutions Stock Quote, Chart TSX:NEPT) but GMP Securities analyst Ryan Macdonell is still bullish on the stock, calling Neptune a potential leader in the North American cannabis industry.
Quebec-based extraction company Neptune Wellness released its fourth quarter fiscal 2019 results on Wednesday, reporting revenue of $5.7 million and an adjusted EBITDA loss of $2.7 million. The March-ended quarter featured negligible revenue from its cannabis operations, as the company conversion to cannabis extraction only began operations in late March.
Macdonell was calling for revenue of $6.5 million and a loss of $2.8 million. In an equity research update on Thursday, the analyst emphasized Neptune’s newly announced three-year extraction agreements with cannabis companies Tilray and TGOD, for a combined minimum volume commitment of 355 tonnes of cannabis and hemp biomass over the length of the contracts, with first shipments expected in September 2019. Macdonell notes that the TGOD agreement involves white labeling of cannabis products, thus allowing NEPT to capture more of the revenue from its operations.
Macdonell says that Neptune is positioned to be one of the largest extraction companies in North America.
“The recent agreements with Tilray and TGOD support our 2020 forecasts and the company’s long-term earnings potential, in our view. With large scale operations on track to be established in both Canada and the US, and with Neptune’s white label formulation experience from its Nutraceutical business, we expect NEPT is positioned to be a leader in the North American cannabis industry,” writes Macdonell.
The analyst says Neptune is experiencing some delays in licensing with Health Canada, which have impacted his fiscal 2020 forecast to the downside, while he is leaving fiscal 2021 unchanged. Macdonell is now calling for fiscal 2020 revenue and EBITDA of $55.8 million and $6.3 million, respectively, and fiscal 2021 revenue and EBITDA of $147.9 million and $58.6 million, respectively.
The analyst is maintaining his “Buy” recommendation and $7.50 target price for NEPT, which represented a projected return of 15.0 per cent at the time of publication.