With its stock near a 52-week low, GMP Securities analyst Justin Keywood says this is a great time to pick up some Zenabis Global (Zenabis Global News, Stock Quote, Chart TSX:ZENA).
This morning, Zenabis announced it had received licensing approval for an expansion that would increase its annual cultivation capacity by 40 per cent.
“We would like to express our gratitude to the communities of northern New Brunswick that supported us from 2015 through to substantial completion, including the Listuguj First Nation, an initial equity investor in our business,” CEO Andrew Grieve said. “We would also like to express our gratitude to the Province of New Brunswick for investing in our business, and to the people of New Brunswick for making us the No. 1 selling recreational cannabis company in this province. Personally, I would like to thank every member of the construction and licensing teams for their exceptional effort in completing this asset. We believe that the efficient approval of the phase 2C — part 1 licence amendment is a testament to the outstanding quality of our construction and licensing teams. We look forward to the cultivation team delivering well above the design capacity of this asset in accordance with recent performance. Zenabis has now increased its licensed capacity nearly sixfold since the creation of the company in January of 2019 through the business combination of Sun Pharm Investments Ltd. and Bevo Agro Inc. We intend to deliver on our commitment to more than quadruple capacity again in the near term with the licensing and completion of our Zenabis Langley initial conversion.”
Keywood says even as ZENA’s stock has fallen the company has filled in value.
“The company’s expected increase in capacity to 131.2 tonnes by Q3/19 could position ZENA as a top 5 producer amongst Canadian LPs,” the analyst says. “In our view, the continued licensing progress for ZENA’s facilities helps de-risk our nearterm forecasts. At 6.5x 2020 EBITDA, ZENA continues to trade well below most peers that average ~20x as a group.”
In a research update to clients today, Keywood maintained his “Buy” rating and one-year price target of $3.25 on Zenabis Global, implying a return of 118 per cent at the time of publication.
“We maintain our BUY rating and $3.25 target price based on a 12x EBITDA multiple for the propagation business and 15x multiple for cannabis,” the analyst adds. “With ZENA shares trading near 52-week lows and at a valuation of 6.5x 2020 EBITDA (vs ~20x for its peers), we view this as an attractive entry point as ZENA continues to execute on its growth strategy.”
Leave a Reply
You must be logged in to post a comment.