MediPharm Labs gets price target hike at PI Financial

Following the company’s second quarter results, PI Financial analyst Devin Schilling has raised his price target on MediPharm Labs (MediPharm Labs Stock Quote, Chart, News TSX:LABS).

On Monday, MediPharm posted its Q2, 2019 results. The company had Adjusted EBITDA of $7.7-million on revenue of $31.5-million.

The company counted its year-to-date highlights, including a cash balance of $72.7-million (as of June 30), a $30-million agreement with Cronos Group for cannabis concentrate, and increase in Canadian production, a white label agreement for two-million vape pens, and the award of a 10,000 square-foot facility in Australia.

“Medipharm Labs made tremendous progress in the second quarter with growth in all key value drivers,” CEO Patrick McCutcheon said. “Based on the strength of our business model and the effectiveness of our corporate strategies, we’ve become the first public Canadian extraction only company to deliver bottom-line earnings and do so while investing heavily in our sophisticated extraction and production platforms ahead of benefits realized. The significant momentum we’ve gained through important new customer and procurement relationships, and the successful ramp up of our Canadian and Australian facilities will drive growth and value for the remainder of this year and well beyond.”

MediPharm Labs in a class with Aurora and Canopy…

Schilling notes that the results were above his forecasts in terms of revenue, EBITDA and EPS. He says that with a 43 per cent increase in revenue over Q1, the company now ranks third in quarterly net revenue, behind only Canopy Growth Corp and Aurora Cannabis. Yet, the analyst points out that the company trades at a discount to its peers, one he thinks is unwarranted.

“LABS currently trades at 13x FY20 EBITDA vs. the peer group average of 18x,” Schilling points out. “This discount is not justified due to the fact that LABS now ranks third in highest quarterly net revenue among all Canadian LPs, has generated positive EBITDA in every quarter since commencing sales, and now becomes the first Canadian LP to generate positive net income without any non-cash fair value adjustments being added back.”

In a research update to clients today, Schilling maintained his “Buy” rating on MediPharm Labs, but raised his one-year price target on the stock from $7.50 to $8.75, implying a return of 39.1 per cent at the time of publication.

Schilling thinks LABS will post EBITDA of $33.1-million on revenue of $137.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of $59.0-million on a topline of $195.4-million the following year.

On July 16, MediPharm Labs issued an operational update noting the “successful ramp up of production capacity to supply its growing customer base”. The company said it had growing private label cannabis concentrate volume, was increasing production to a weekly average of 75-million milligrams of active cannabinoid component concentrate, increased its annual dried cannabis processing capacity to 300,000 kilograms and expects to reach more than 500,000 kilograms, was broadening its domestic and global production, increasing its supply of dried cannabis, expanding its Health Canada approved footprint, enhancing its quality and governance, and increasing the scale it s Soft Gel capsule capabilities in Q3 2019 with an eye towards becoming one of the largest vapourizer fill manufacturers in Canada by this fall.