The Supreme Cannabis Company has a 126 per cent upside, says GMP Securities

Based on the company’s bullish guidance, The Supreme Cannabis Company (The Supreme Cannabis Company Stock Quote, Chart, Newws TSX:FIRE) is getting a target price raise from GMP Securities, where analyst Robert Fagan says that the company’s mojo in the wholesale cannabis market and its ability to turn a profit should separate FIRE from the pack of Canadian LPs.

Ahead of its fourth quarter financials expected on September 17, 2019, Supreme on Tuesday announced expected revenue numbers for its Q4 along with 2020 guidance. The Toronto-based company is projecting fourth quarter sales to hit $19 million, which would represent a 90-per-cent quarter-on-quarter increase and stand about 45 per cent higher than the current consensus expectation of $13 million. Supreme is also calling for Q4 to be its first positive EBITDA quarter, while for fiscal 2020, management is expecting revenues to come in between $150 and $180 million, a big lift in comparison to the current consensus of about $130 million.

Supreme Cannabis price target raised from from $2.75 to $3.25 at GMP

“Our company has taken deliberate steps to grow in a focused, responsible and compliant manner, building a strong core business and an authentic brand and then expanding into new lines of business and international markets,” said CEO Navdeep Dhaliwal in a press release. “We believe our preliminary results demonstrate the strength of our business during an inflection point within the industry.”

In an update to clients on Wednesday, Fagan says that the new projected numbers signify a turnaround for Supreme.

“FIRE’s strong Q4/FY19 revenues and bullish growth expectations for FY20 mark a significant reversal from the outlook in place at the end of Q3/FY19, when the company was facing production issues and lower than projected capacity, leading to low visibility on the timing for meaningful EBITDA generation,” Fagan writes.

“However, FIRE’s ability to capitalize on attractive wholesale market conditions and transform its operations to profitability, now rank the company amongst only a handful of Canadian LPs to have achieved this milestone. This warrants stronger valuation metrics in our view, hence with shares trading at 6x CY20 EBITDA, FIRE’s valuation appears attractive,” he said.

The analyst says that he expects the robust wholesale market conditions in Canada to continue through at least the end of this calendar year, effectively good news for Supreme, which has been able to sell essentially all of its production.

Also on Tuesday, Supreme announced the closing of its previously-announced acquisition of extraction and purification business Truverra, which also has CBD hemp products business in Europe. The $20-million acquisition, along with the recent purchase of wellness company Blissco, should make it easier for Supreme to reach its fiscal 2020 projections, says Fagan.

The analyst has upgraded his forecast, now calling for fiscal 2019 revenue and EBITDA of $42.0 million (previously $36.1 million) and negative $6.1 million (previously negative $8.6 million), respectively. His fiscal 2020 revenue and EBITDA estimates are now $165.6 million (previously $129.6 million) and $44.1 million (previously $40.3 million), respectively.

Fagan is maintaining his “Buy” rating and moving up his target from $2.75 to $3.25, which represented a projected 12-month return of 125.7 per cent at the time of publication.