Mackie Research Capital Corporation analyst Greg McLeish continues to stay bullish on cannabis extraction name Valens GroWorks (Valens GroWorks Stock Quote, Chart, News TSXV:VGW) after the company’s strong quarterly results.
The analyst delivered a review of the quarter in a client update on October 18 where he reiterated his “Buy” rating and $8.00 target price for VGW, which represented a projected 12-month return of 145 per cent at the time of publication.
Kelowna-based Valens announced its third quarter financials on October 15, which featured record top and bottom line numbers and a handsome gross profit of 77.8 per cent of revenue. Valens’ revenue grew to $16.5 million, 87 per cent better than the previous quarter, while its adjusted EBITDA of $9.8 million was up substantially from $2.0 over its second quarter 2019.
“We are extremely pleased with the roll-out of our business plan and the continued scale up in the Company’s extraction operations which have allowed us to continue our aggressive quarter over quarter growth in volumes, revenue, adjusted EBITDA and net income,” said Tyler Robson, CEO, in a press release. “The Company’s performance in the third quarter clearly demonstrates our industry leading technical capabilities, the quality of our products and the earnings power of our platform.”
Revenue and EBITDA were better than expected, according to McLeish, who had called for a top line of $13.3 million and adjusted EBITDA of $4.5 million. The analyst says that with a still-strong balance sheet, ramped up extraction capacity of 425,000 kg of dried cannabis and hemp biomass and plans to expand to over 1,000,000 kg, his thesis on Valens remains intact.
“Valens continues to experience significant demand for its services and it is accelerating its growth to ensure that it is able to meet the growing demand of its partners for both extraction and white label product development,” writes McLeish.
“Valens also announced that construction has commenced on its recently acquired adjoining facility in Kelowna, British Columbia. This purpose-built facility will significantly increase the company’s footprint and is anticipated to be completed in H1 2020 bringing Valens’ extraction capacity to over 1,000,000 kg per annum. This new facility will also expand Valens’ white label capacity to include capsules, vaporizers, topicals, edibles and concentrates,” he says.
McLeish noted that the company’s strong third quarter sales momentum — which saw it process 26,625 kg of pot and hemp over the third quarter (a 212-per-cent increase over Q2) —looks like it’s continuing over the fourth quarter, where the company has reported processing 13,423 kg of biomass over the first 45 days of Q4.
Other notables over the quarter, according to McLeish, were Valens’ receipt of an amended license from Health Canada to manufacture and supply oil products directly to provincial distributors and other authorized Canadian retail supply channels, Valens’ agreement to supply cannabis oil derivative products to Medical Cannabis by Shoppers Drug Mart (the druggist’s first third-party processor agreement) and the company’s announcement of a white label supply agreement with the cannabis division of Iconic Brewing.
McLeish thinks that VGW will deliver fiscal 2019 revenue and EBITDA of $49.6 million and $18.8 million, respectively, and fiscal 2020 revenue and EBITDA of $175.3 million and $80.5 million, respectively.