Meta Growth (Meta Growth Stock Quote, Chart, News TSXV:META) posted mixed results in its latest quarter but Echelon Wealth Partners analyst Andrew Semple said the company is keeping its eyes on the prize for the Canadian cannabis retail sector, namely, expansion in Ontario.
Semple reviewed META’s Q2 2020 in an update to clients last Friday, saying the company’s health cash balance will serve its expansion needs.
Toronto-headquartered Meta Growth (formerly National Access Cannabis Corp) owns and operates retail cannabis stores across Canada under its NewLeaf Cannabis and Meta Cannabis Co. banners, with additional business in an e-commerce platform and a legacy medical cannabis clinics business.
The company reported its fiscal second quarter 2020 last Friday, featuring $13.6 million in revenue, down 14 per cent sequentially and below Semple’s estimate of $14.8 million. EBITDA for the Q2 was a loss of $2.1 million compared to Semple’s forecasted loss of $3.3 million.
Lower wholesale prices and strong competition in Alberta, where META has the majority of its stores, hit the company’s top line over the quarter, according to CEO Mark Goliger, who in his comments wrote,
“We believe the Alberta market has negatively impacted all retailers, as more and more retailers compete for the same total available market. With this understanding, we did not open any new stores in Q2 in Alberta as we are focused on delivering the highest return on investment which we feel is best served by expanding into Ontario once the market finally opens. Thankfully that time has now come, and we are ready to execute.”
Overall, Semple said he viewed the quarterly results favourably, highlighting the stronger than expected earnings and the company’s capable cash position, which stood at $15.7 million in cash and $7.0 million of undrawn debt.
“Our bullish view of Meta is centered on the opportunity to build a successful cannabis retail network in Ontario –which is perhaps currently the most attractive investment opportunity in the Canadian cannabis industry– and on the Company’s discounted valuation, which leaves ample room for appreciation. We note the tough competitive conditions in the Alberta market may weigh on near-term results, but we expect
improvements there over the longer term,” Semple wrote.
“With $21 million of gross proceeds raised in recent months in both equity and debt, we believe Meta is one of the few national retailers with the necessary capital on hand to scale its footprint in Ontario. The Company is wholly focusing its efforts and capital to secure a head start in this newly opened market. Potential regulatory approvals in Ontario could prove to be a significant catalyst for the stock, as well as for financial performance in F2020 and over the coming years,” Semple said.
With the update, Semple has reiterated his “Speculative Buy” rating and $0.30 per share target price for META, which at press time represented a projected 12-month return of 150 per cent.
Looking at the financial metrics, the analyst thinks META will generate fiscal 202 revenue and adjusted EBITDA of $60.2 million and negative $7.4 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $103.1 million and $0.0 million, respectively.