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OrganiGram is still undervalued, PI Financial says

OrganiGram

Following the company’s third quarter results, PI Financial analyst Jason Zandberg is maintaining his “Buy” rating on OrganiGram (OrganiGram News Stock Quote, Chart TSXV:OGI).

This morning, OGI reported its Q3, 2019 results. The company lost $10.18-million on net revenue of $24.8-million, a topline that was up 626 per cent over the same period last year.

“We continued to report strong sales in our third quarter and now have distribution in all 10 provinces,” CEO Greg Engel said. “In our fiscal year to date, we have generated strong operating and financial results, placing us among the leaders in the Canadian industry. While we saw a temporary reduction in yield per plant in Q3 due to temporary changes in growing protocols, not only have our yields returned to historical levels, but we have seen a meaningful increase in average cannabinoid levels in harvests to date in Q4. “We have seen adult recreational cannabis sales highly correlate to the presence of physical retail stores based on a comparison of the provinces in Canada. The Canadian market is positioned to grow significantly with more retail stores opening — particularly in the two most populous provinces of Ontario and Quebec — and the upcoming legalization and availability of edibles and derivative products. We expect to remain a national market leader by maintaining our track record of meeting supply commitments and delivering high-quality product to our customers. Our experienced team continues to derisk our edibles and derivative strategy in order to be ready to launch the most popular cannabis product forms upon legalization.”

Zandberg says that OGI’s revenue and EBITDA were below his forecasts of $31.1-million and $10.9-million, respectively. Despite this, he says things are looking up for the company.

“Despite the recent slowdown in sales observed by major LP’s, we see the near term outlook in Canada as positive,” the analyst says. “We expect another large pipeline fill for ON as the province recently announced 50 additional stores. AB has issued ~176 retail licenses and plans to issue more. QC also plans to more than double its retail presence by March 2020. Additionally, the launch of edible and derivative products in December 2019 will propel the sales of cannabis products Canada wide.”

In a research update to clients today, Zandberg maintained his “Buy” rating and one-year price target of $12.00 on OrganiGram, implying a return of 47 per cent over the intraday price of $8.17.

Zandberg thinks OGI will post EBITDA of $36.1-million on revenue of $92.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of $62.5-million on a topline of $195.4-million the following year.

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

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