EnWave Corporation (EnWave Corporation Stock Quote, Chart, News TSXV:ENW) continues to build up its business on Moon Cheese and cannabis, says analyst Neil Linsdell of Industrial Alliance Securities, who in an earnings preview on Tuesday maintained his “Buy” rating and $2.75 target.
Vancouver-based EnWave has developed a proprietary dehydration of organic materials technology called Radiant Energy Vacuum (REV), which has found applications and commercialization in a number of markets through over 20 royalty-bearing licenses to date. The company also owns and operates NutraDried Food Company which sells all-natural cheese snacks under the Moon Cheese brand and in recent years has also developed its business within the cannabis sector.
Ahead of EnWave’s third quarter fiscal 2019 financials due after market close on Wednesday, Linsdell is predicting strong revenue growth of 43.1 per cent year-over-year to $9.7 million, with $2.7 million in new equipment sales and $6.6 million in NutraDried sales of Moon Cheese (up 28 per cent). The analyst says that he expects lower profitability for the quarter, however, (adjusted EBITDA sinking to $0.7 million, down from $1.3 million a year ago) due to Moon Cheese being included in Costco’s Most Valuable Member coupon program, which is likely to trim the company’s margins to 7.1 per cent, says Linsdell.
“Ongoing announcements of progress and orders with partners across various markets provide further support to our positive outlook, which includes still significant growth from EnWave’s wholly owned subsidiary NutraDried, as it continues to roll out Moon Cheese snacks through Costco divisions across the US. Although the NutraDried business continues to dominate the financial statements and valuation method, cannabis continues to grow in influence and potential,” writes Linsdell in a client update.
EnWave has taken a number of key steps on the cannabis front, starting with a partnership with Tilray, established back in October 2017, through which EnWave and Tilray signed a royalty-bearing commercial sub-license with The Green Organic Dutchman in January 2019. Then in April, EnWave and Aurora Cannabis announced a royalty-bearing license agreement with the EU.
Further, in June EnWave was added to the Horizon Marijuana Life Sciences Index ETF, followed in August by ENW being added to the NYSE-listed The Cannabis ETF. Linsdell says that the latter announcement effectively broadens EnWave’s investor base and gives it more exposure to US-based investors.
“EnWave has significantly increased its scope and scale in the cannabis sector. We anticipate that REVTM units can produce 2-3x the royalties drying cannabis than other food products given the high value per volume ratios,” he writes.
The analyst thinks that EnWave will generate fiscal 2019 revenue and adjusted EBITDA of $47.3 million and $5.0 million, respectively, and fiscal 2020 revenue and adjusted EBITDA of $60.5 million and $14.1 million, respectively. His $2.75 target price represents a projected 12-month return on investment of 21 per cent at the time of publication.
So far, EnWave has had a great 2019, with the stock gaining about 75 per cent in value year-to-date.