The Valens Company (The Valens Company Stock Quote, Chart, News TSX:VLNS) remained a Top Pick for AltaCorp Capital’s David Kideckel after the analyst reviewed the company’s quarterly results in an update to clients on Wednesday.
Kideckel reasserted his “Outperform” rating and one-year target of $8.00, saying that Valens stands out as a partner of choice for CPG companies looking to enter the cannabis space.
Kelowna, BC-based extraction company Valens announced its first quarter 2020 financials on Tuesday, showing revenue of $32.0 million, up from $30.6 million for the previous quarter and a world away from the $2.2-million generated a year earlier.
The company ended the quarter with $44.3 million in cash and short-term investments and, on Thursday, announced its graduation to the TSX senior board.
“The first quarter of fiscal 2020 was pivotal for The Valens Company as we hit many milestones, including posting continued quarter-over-quarter revenue growth and having oil-based cannabis 2.0 products hit the shelves in Canada amidst a challenging market backdrop,” said CEO Tyler Robson in a press release.
The Valens Company, which previously went by Valens GroWorks, has gone about a rebranding, Robson related, in conjunction with its new focus on its white label product business.
“This was the motivation for our rebrand to The Valens Company which represents much more than just a corporate name change, it signifies the evolution of our business into a leading cannabinoid-based product development and manufacturing company positioned to capitalize on the evolving industry on a global scale,” Robson said.
For his part Kideckel called the Q1 results a positive for the company and stock as it represented the third consecutive quarter of revenue growth and positive net income.
“Despite near-term uncertainty brought by the COVID-19 pandemic which also plagues the entire cannabis industry, Valens continues to execute its white label strategy, with several cannabis 2.0 products brought to market, including beverages and vapes. We believe Valens’ consistent execution is a testament to the Company’s differentiated capabilities in the cannabis space as well as its managerial sophistication,” Kideckel wrote.
Compared to Valens’ Q1 revenue and adjusted gross profit of $32 million and $18.1 million, respectively, Kideckel had called for revenue of $30.2 million (consensus was $31.7 million) and adjusted gross profit of $18.3 million (consensus was $21.6 million).
Kideckel likes Valens in the still-volatile cannabis sector, as the companny has a diversified client base for both its tolling services (where cannabis suppliers are paying a fee per gram for extraction services) and white label services (where Valens is selling cannabis oil products to other companies who then brand and market).
Kideckel said Valens is accelerating its white label business in response to strong demand for Cannabis 2.0 products.
“We believe Valens is positioned in the Canadian cannabis landscape as a potential partner for CPG companies given Valens’ differentiated capabilities. In our view, white label contracts and potential partnerships with CPG companies may serve as near-term catalysts for Valens,” he wrote.
The analyst has offered revised projections — $155.1 million in revenue and $52.7 million in adjusted EBITDA in 2020 — which have not materially affected his target price of $8.00, which, at the time of publication, reflected a total 12-month return of 248 per cent.