Better than expected quarterly results from PharmaCielo ( PharmaCielo Stock Quote, Chart, News TSXV:PCLO) have GMP Securities analyst Robert Fagan staying positive on the company and the stock.
In an update to clients on Wednesday, Fagan reiterated his “Buy” rating and $12.00 target for PCLO, praising the cannabis company’s strong cost control over its second quarter.
Toronto-based PharmaCielo, which has principal operations in Columbia, announced its Q2 ended June 30, 2019, on Tuesday, coming in with total operating expenses of $8.8 million as compared to $3.1 million a year prior and a net loss of $10.7 million as compared to $3.8 million in 2018.
PharmaCielo’s second quarter was a busy one in which the company entered into an agreement to buy Australia-based international cannabis company Creso Pharma. Then in July, PCLO received approval from the Colombian government for the export for commercial sale of its CBD isolate, completing its first export last week.
“Since January, we have scaled our low-cost cultivation footprint to 12.1 hectares under active cultivation (capable of annual cultivation in excess of 0.48 million kg), increased oil processing capacity twelvefold to handle 265 tonnes of dried flower per year, received the final permit necessary for exporting CBD isolate from Colombia and completed our first commercial export to Europe,” said CEO David Attard in the quarterly press release
“The next 12 months will be an exciting time to be a PharmaCielo shareholder as we begin to leverage the platform in Colombia that has been built over the past six years to drive first commercial revenue and a significant step-up in growth during 2020,” Attard wrote.
Fagan says that the company’s Q2 results came in slightly better than his expectations but added the caveat that the results were not all that material given the current pre-revenue stage of the company. Its adjusted EBITDA loss of $3.6 million was slightly down from a loss of $3.0 million over the previous quarter and slightly better than his forecast of a loss of $3.9 million.
“PCLO controlled costs rather impressively with SG&A increasing by 4 per cent quarter-on-quarter and remaining at roughly stable levels since Q4/18. This is despite PCLO’s cultivation capacity having increased by ~2.5x, from 0.5m sq.ft. in Q2/18 to 1.3m sq.ft. in Q2/19 while SG&A increased by a modest ~40 per cent over the same period,” writes Fagan.
“We believe these results support our view of PCLO’s lean business model with a focus on establishing amongst the lowest cost production infrastructure ahead of potential sales generation, which is primed to generate meaningful operating leverage in our view once more material revenue generation begins,” he said.
Fagan’s $12.00 target price represented a projected return of 143.4 per cent at the time of publication.
Earlier this month, PharmaCielo announced that it had expanded further into Latin America with a sales agreement with Laboratorios Adler. The four-and-a-half year agreement will see PCLO supply Laboratorios Adler with bulk CBD extracts and oils to be sold in Uruguay, Paraguay, Bolivia and Southern Brazil. The deal also includes a sub-contracting to Creso Pharma.
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