PI Financial cuts price target on Aphria

Following the company’s second quarter results, PI Financial analyst Jason Zandberg has cut his price target on Aphria (Aphria Stock Quote, Chart, News TSX:APHA), though the analyst has maintained his “Buy” rating on the stock.

On Tuesday, Aphria reported its Q2, 2020 results. The company lost $7.92-million on net revenue of $120.6-million, a topline that was up 458 per cent over the same period last year.

“We are very pleased with our strong growth and execution in Canada demonstrated by our increase in adult-use cannabis revenue and positive adjusted EBITDA as a result of our compelling brands and market positioning,” said CEO Irwin D. Simon. “We are continuing to expand our capabilities internationally with solid progress during the quarter in Germany and South America and look to monetize non-core assets. We are confident in our market position and our ability to generate sustainable profit growth. I am honoured to continue to work closely with our tremendous team around the world to fuel growth and value for all of our stakeholders. Going forward, we believe our brands, cultivation expertise, cash position and balance sheet will continue to differentiate us in the cannabis industry, and we remain focused on the highest return opportunities for growth.”

Zandberg detailed the quarter and one particular worrying area for the company.

“Overall cannabis sales were $39.8M less $6.1M in excise taxes for net revenue of $33.7M,” the analyst noted. “Medical revenue was flat compared to Q1 at $10.1M. All the growth for cannabis sales was within the recreational sales as rec revenue was up 45% to $29.0M. This growth was impressive and APHA holds the #1 market share position for pre-roll, oil and capsules in Ontario, PEI and Nova Scotia. European distribution continues to struggle. This is the second straight quarter of disappointing distribution sales and again management indicated that the disruption in the Germany government reimbursement model was to blame.”

In a research update to clients today, Zandberg maintained his “Buy” rating Aphria but lowered his one-year price target on the stock from $9.00 to $8.00, an implied return of 23.3 per cent at the time of publication.

The analyst thinks APHA will post EBITDA of $37.4-million on revenue of $577.7-million in fiscal 2020. He expect those numbers will improve to EBITDA of $150.2-million on a topline of $878.2-million the following year.

“We are maintaining our BUY rating (risk: SPECULATIVE) but reducing our target to $8.00 (previously $9.00) for Aphria Inc. (T-APHA),” Zandberg concluded. “Our target price is based on a 16x EBITDA multiple on its cannabis operations and a 5x EBITDA multiple on its distribution business. The overall EBITDA multiple on our target is 13x FY21 EBITDA. Canadian cannabis peers trade at an average of 18x FY21 EBITDA.”