GMP Securities analyst Ryan Macdonell says cannabis extraction company Valens GroWorks (Valens GroWorks News, Stock Quote, Chart TSXV:VGW) is ready to make its mark in the Cannabis 2.0 market.
In an update to clients on Friday, Macdonell reiterated his “Buy” recommendation and $10.00 target, representing a projected return of 172.5 per cent at the time of publication.
Valens recently held a well-attended investor day, where Macdonell came away impressed by the company’s operations. As the analyst relates, the tour of its Kelowna, BC, facility included a look at its hydrocarbon extraction equipment —the only sizeable capacity of its kind that Macdonell has seen in the Canadian industry and one which he sees as not easily replicated by other participants. The analyst estimates that with the extractor having an output capacity of 25 tonnes, that could represent between $0.75 and $1.0 billion in revenue.
Along with the company’s domestic operations, Macdonell highlighted its plans for international expansion where VGW is looking at the US, Europe, Colombia and Australia, with the company expecting to announce its first finalized international expansion before the end of 2019.
“With its breadth of extraction methods and its beverage/emulsion technology, Valens is well positioned to achieve its goal of becoming a leader in third-party cannabis product formulation and manufacturing, in our view,” says Macdonell.
“We derive our $10.00 target price using a 15x multiple applied to our CY20 EBITDA estimate. In our view, Valens deserves such a multiple given the company’s strong growth prospects, high profitability levels and significant readiness for the upcoming extract products market,” he writes.
Macdonell thinks that VGW will generate fiscal 2019 revenue and EBITDA of $53.7 million and $16.9 million, respectively, and fiscal 2020 revenue and EBITDA of $181.0 million and $77.3 million, respectively.
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