Trulieve M&A on the way?
Following the announcement that cleared up the pricing of a previously announced best efforts debenture unit offering, Beacon Securities analyst Russell Stanley is maintaining his bullish stance on Trulieve Cannabis Corp (Trulieve Cannabis Corp Stock Quote, Chart, News CSE:TRUL).
On Wednesday, TRUL announced that it would raise just over (US) $61-million by in a debenture unit offering. The company said the use of proceeds was acquisitions, capital expenditures, and general corporate purposes.
Stanley said this development adds to an already strong balance sheet for Trulieve, prepping the company for what he expects will be a round of M&A.
“TRUL exited Q2/19 with $54.0M in cash and equivalents, and generated $9.3M in cash from operations (after working capital requirements), giving it one of the strongest balance sheet/cash flow positions amongst the US operating companies. We therefore view this financing as setting the stage for potential acquisitions. We have updated our model to assume the financing closes in November. Earlier this month, the company reiterated its goal for establishing a presence in six US states by year end. With a dominant position in Florida, and additional interests in Massachusetts, Californian and Connecticut, TRUL would need to expand into at least two more markets by year end in order to deliver on that target. The company also opened its 38th dispensary earlier this week, putting it on track for its 2019 guidance of 44+ stores open by year end.
In a research update to clients today, Stanley maintained his “Buy” rating and one-year price target of $36.00 on Trulieve, implying a return of 169 per cent at the time of publication.
Stanley thinks TRUL will post Adjusted EBITDA of $104.0-million on revenue of $236.0-million in fiscal 2019. He expects those numbers will improve to EBITDA of $164.0-million on a topline of $397.0-million the following year.
The analyst thinks the valuation of the stock looks “very attractive” wen compared to its broad peer group.
“TRUL now trades at approximately 6.0x our F2021 EBITDA estimate. This represents a 34% discount to the 9.1x average for the broad peer group, and an 8% premium to the 5.5x average amongst US-operating cannabis companies,” Russell added. “Potential catalysts include additional retail buildout updates, the Q3/19 results in November, and expansion progress in other states.”
Meanwhile, the organic growth continues for TRUL. On Tuesday, the company announced it would open its 38th dispensary in Florida, in Panama City Beach.
Trulieve said it would stock CBD and THC products in a range of delivery methods, including vaporizers, topical creams, concentrates and smokable cannabis.
“We’re fortunate to have a passionate patient base in the Panhandle and are looking forward to bringing our exceptional selection of products to patients in Panama City Beach and the surrounding areas. As Florida’s registry grows and patients continue to seek natural, effective relief, we will continue to expand patient access to the safe, reliable medications they rely on,” CEO Kim Rivers said. “Our team in Panama City is looking forward to educating patients on the process, whether they’re taking their first steps with medical cannabis or exploring alternative treatment options, as well as offering direct access for those who may not have had access to a physical dispensary in the past.”