A huge investment from Imperial Brands will accelerate the business of Auxly Cannabis Group (Auxly Cannabis Group News, Stock Quote, Chart TSXV:XLY), Mackie Research Capital analyst Greg McLeish says.
On July 25, XLY announced that Imperial Brands PLC would invest approximately $123-million into it, giving the latter 19.9 per cent of the company.
“This investment from Imperial Brands will enhance Auxly’s ability to continue to deliver on our business plans and accelerate our growth initiatives to expand our portfolio of branded derivative products,” said Auxly president Hugo Alves. “The timing is ideal as we prepare to bring our portfolio of innovative cannabis products to the Canadian market following the legalization of edibles, extracts and topicals later this year.”
McLeish says this deal brings clear momentum to Auxly.
“We believe Imperial’s investment in Auxly helps to validate the company’s business model: This collaborative partnership between Imperial Brands and Auxly will help accelerate the company’s business plan as the cannabis industry moves towards “Cannabis 2.0” where cannabis edibles, vapes and concentrates will be legalized,” he writes. “Auxly is expected to work closely with Nerudia to develop a portfolio of new and enhanced vapor products and brands, once the sale of edibles and derivatives products becomes legal in Canada, which is expected in December 2019.
In a research update to clients today, McLeish maintained his “Buy” rating and one-year price target of $1.75 on XLY, implying a return of 101.1 per cent at the time of publication.
The analyst thinks Auxly will post EBITDA of negative $37.9-million on revenue of $8.52-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $85.4-million on a topline of $249.3-million the following year.
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