A leadership shakeup at Neptune Wellness (Neptune Wellness Solutions News, Stock Quote, Chart TSX:NEPT) isn’t shaking Echelon Wealth Partners analyst Doug Loe’s belief that the stock is undervalued.
This morning, NEPT announced that it had appointed Michael Cammarata, the co-founder of Schmidt’s Naturals as CEO, succeeding Jim Hamilton who was boss for four years.
“Michael has extensive executive leadership experience at the forefront of consumer innovation. He has identified new trends and opportunities which led to the development of market-leading products,” said NEPT chairman John Moretz. “These critical skills should benefit our customers. Moreover, Michael possesses the right mix of operational CEO experience, leadership skills and technology industry expertise to help elevate Neptune to the next level.”
Loe says a senior leadership transition almost always creates some short term operational churn, but adds that seems like a good move, overall.
“As an initial thesis, we believe that Mr. Cammarata’s breadth of experience in consumer product branding, in managing distribution channels for assorted consumer brands, and interestingly with add-on experience in already exploring ways that hemp could be incorporated into future Schmidt Naturals product lines, and we believe that the new CEO’s resume is one that overlaps solidly with Neptune’s value proposition (at least as we define it) in the nascent cannabis oil extraction industry,” the analyst says. “Brand differentiation seems to have been a core competitive advantage at Schmidt Naturals, which manufactured and marketed assorted health consumer products (deodorants and soaps, mostly) and thus competed in a healthcare market that itself is highly competitive. Our channel checks show us that Mr. Cammarata has existing relationships within the cannabis production industry already, which could facilitate new supply agreements and stabilize existing supply agreements that Neptune under Jim Hamilton’s stewardship already has in place with Canopy Growth, Tilray and The Green Organic Dutchman Holdings, as announced in prior quarters. The firm’s historic expertise in extracting biologically-active oils, as originally established through legacy krill oil/omega-3 phospholipid ester extraction capabilities, remains core to our NEPT investment thesis and is unchanged by shifts in leadership profile.”
In a research update to clients today, Loe maintained his “Buy” rating and one-year price target of $9.50 on Neptune, implying a return of 64 per cent at the time of publication.
Loe thinks NEPT will post Adjusted EBITDA of $14.6-million on consolidated revenue of $50.3-million in fiscal 2020. He expects those numbers will improve to EBITDA of $55.7-million on a topline of $143.4-million the following year.