Aurora Cannabis keeps $2.80 share target at AltaCorp Capital

New quarterly results from Aurora Cannabis (Aurora Cannabis Stock Quote, Chart, News TSX:ACB) met with the company’s guidance delivered last week, a result taken as neither here nor there by AltaCorp Capital analyst David Kideckel, who in an update to clients Thursday maintained his position that the Canadian LP is one of the better positioned Canadian LPs.

Shares of Edmonton-based Aurora were up on Thursday with the release of its second quarter fiscal 2020 results, which featured total revenue of $56.0 million compared to $75.2 million for the previous quarter and $54.2 million for Q2 2019. The adjusted EBITDA loss for the quarter was $80.2 million compared to a loss of $39.7 million for the previous quarter.

Last week, Aurora issued revised guidance, a notice of $1 billion in write downs and amendments to its credit facilities, along with announcing a business transformation plan, staff layoffs of ten per cent and the immediate departure of chief executive Terry Booth.

“The transformational actions we announced last week have already positively impacted SG&A expense and we are confident that our run-rate will be approximately $40 million- $45 million as we exit the fiscal fourth quarter of 2020. This is a very important step toward EBITDA profitability,” said Glen Ibbott, CFO, in a press release on Thursday.

“In addition, our credit facility was amended to provide greater flexibility to Aurora. More specifically, Aurora chose to downsize the facility by $96.5 million with the elimination of undrawn term loan capacity, and further used $45 million of restricted cash to repay a portion of the drawn term loan balance for the purpose of reducing leverage and cash required for debt service.”

The quarterly top line of $56.0 million was better than Kideckel’s $51.2-million estimate and the consensus $52.0 million, while the adjusted EBITDA loss of $80.2 million was also better than Kideckel’s negative $81.6 million but a hair lower than the Street’s negative $79.8 million.

In his update, Kideckel noted that ACB’s net revenue was impacted by provisions of $10.6 million, with $6.1 million of that related to actual returns and $4.5 million relative to provisions for future returns and price adjustments, while the company’s adjusted gross margin on net cannabis revenue (including the impact of provisions) was about 44 per cent.

“Overall, we view the results as neutral to our investment thesis,” wrote Kideckel. “Aurora maintained its guidance, provided earlier on February 6th, 2020. Aurora expects revenue to be ~$65 million for Q3/FY20e (ending March 31, 2020), which is broadly flat relative to revenue in Q2/FY20, before considering provisions for price reductions and product returns. Aurora anticipates it will generate positive EBITDA primarily by controlling operating expenses.”

In a note on February 7, Kideckel said that if executed, Aurora’s business transformation plan, which includes taking steps to cuts costs and preserve its capital position — both important steps to achieve positive operating profitability and free cash flows in fiscal 2021 — should leave the company well-positioned for the next phase of growth in the Canadian cannabis sector.

Kideckel has maintained his “Sector Perform” rating and $2.80 per share target, which at the time of publication represented a projected return of 26 per cent.