Beacon Securities analyst Doug Cooper says he’s staying “extremely bullish” on Nevada’s Planet 13 Holdings (Planet 13 Holdings Stock Quote, Chart, News CSE:PLTH), saying the Nevada-based company is very undervalued compared to its peers in the US cannabis space.
On Friday, Cooper reviewed Planet 13’s latest quarterly results and reiterated his “Buy” recommendation and C$8.50 target price for PLTH, representing a projected 12-month return of 247 per cent at the time of publication.
Sales numbers continue to improve for Planet 13 through its second quarter ended June 30, 2019, where it delivered quarterly revenue of $16.5 million, a 19.5-per-cent increase over the previous quarter, and EBITDA of $2.7 million, a 105-per-cent jump from its Q1. According to management, the company grew its market share in Nevada to 9.5 per from 7.9 per cent in the previous quarter.
“We are growing sales on both an absolute basis and as a percentage of the total market,” said Larry Scheffler, Co-CEO, in a press release. “Our Phase II expansion is progressing at full speed with the goal of opening at the end of Q3. Phase II which includes a 15,000 sq. ft. customer facing production facility, a restaurant, a coffee shop, and event space will build on Planet 13’s leading position in Las Vegas by creating an experience no other dispensary can offer.”
Drilling down, Cooper pointed out that Planet’s revenue jump was driven by an increase in average daily customers at the SuperStore (up 15 per cent), average daily visitors (up 28 per cent) and average ticket (up 2.2 per cent to $89.71). That translated to a market share for Clark County of 12 per cent versus 10.5 per cent in its first quarter.
Cooper said Planet 13 Holdings is delivering a textbook case of how operating leverage is drawn up, saying,
“In our view, it is incredibly important to look at EBITDA flow through from incremental revenue growth. In particular, Q2 revenue growth versus Q1 was $2.9 million with EBITDA growth of $1.4 million, representing a flow through of 52 per cent or just below the gross margin of 58.7 per cent. Furthermore, corporate overhead was inflated in the quarter by ~$0.6 million from litigation and California expansion plans. Therefore, the SuperStore’s segment EBITDA was ~$3.3m (20 per cent) with a flow through from incremental revenue of 74 per cent,” Cooper writes.
The analyst says that he sees more room for P13 to grow in the Nevada cannabis space and that margin expansion could be in the cards.
“From a valuation perspective, we continue to be amazed at how inexpensive shares of P13 are. In a market that is starting to separate the winners from the losers, there is no doubt that P13 is the clear winner in Nevada – an incredibly important state given its tourist traffic. Its experience there should bode well in California where there really is no established destination-experience/retail brand,” writes Cooper.
The analyst estimates that P13 is currently trading at 4.1x on a last quarter annualized sales basis, which is near the bottom of its US cannabis comparables which range from 2.9x to 25.5x. Cooper thinks that Planet 13 will finish fiscal 2019 with $82.1 million in revenue and $20.5 million in adjusted EBITDA. For 2020, he is predicting a $109.5 million top line on $38.0 million in adjusted EBITDA.
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