On Tuesday, MediPharm issued an operational update detailing what it described as “significant strategic progress”. Amongst other things, the company said it had signed four large contracts for the sale of private-label cannabis concentrate, increased production, broadened its global and domestic distribution, and gained momentum in Australia.
“Medipharm Labs is executing exceptionally well against all of our strategic operating priorities for 2019 and this will be reflected in our financial results for Q2 and beyond,” CEO Patrick McCutcheon said. “I am particularly pleased with the pace of new sales, the advancements we’re making in scaling up global production, and the high-quality collaborations under way with industry Health Canada-compliant suppliers, customers and scientific partners. I am confident that our recent momentum will continue as we strive to produce the world’s best cannabis concentrates and drive future cannabis product innovation.”
Macdonell says LABS continues to be undervalued when compared to its peers.
“The operational update demonstrates that MediPharm Labs continues to execute on its strategy of expanding its bulk wholesale crude resin business while simultaneously building its white labeling operations for current and future products. At ~8x 2020 EBITDA, LABS trades at an attractive valuation considering the growth ramp on the horizon for the company with cannabis 2.0
In a research update to clients today, Macdonell maintained his “Buy” rating and one-year price target of $7.75 on MediPharm, implying a return of 68.5 per cent at the time of publication.
The analyst thinks LABS will post EBITDA of $29.3-million on revenue of $118.4-million in fiscal 2019. He expects those numbers will improve to EBITDA of $71.2-million on a topline of $223.3-million the following year.
“We derive our $7.75 target price using a 15x multiple applied to our CY20 EBITDA estimate,” the analyst adds. “In our view, LABS deserves such a multiple given the company’s strong EBITDA generation and growth potential.”