Canopy Rivers has priced target trimmed at PI Financial

It’s been a wild couple of weeks of trading for Canopy Rivers (Canopy Rivers Stock Quote, Chart, News TSX:RIV) and there could be more turmoil ahead. In an earnings update to clients on Wednesday, PI Financial analyst Devin Schilling reviewed RIV’s recent quarterly financials, keeping his “Buy” rating but dropping his price target from $2.75 to $2.50 per share.

Canopy Rivers, an investment and operating platform for the cannabis sector, released its fiscal fourth quarter and full year 2020 results on Wednesday, featuring operating income of $2.6 million for the quarter and $11.9 million for the year to go along with an EBITDA loss of $2.5 million for the quarter. Fully diluted EPS for the Q4 was a loss of $0.16 per share compared to a loss of $0.01 per share a year earlier.

Looking at the year that was, president an CEO Narbé Alexandrian said in the company’s press release that it’s been a volatile period for the cannabis sector at large, capped off with the uncertainties surrounding COVID-19. In response, Canopy Rivers has made strategic and operational changes to put the company in a better position going forward.

On the company’s achievements over the past 12 months, Alexandrian said, “Our portfolio companies reached new milestones, including the licensing of PharmHouse, the expansion of TerrAscend’s U.S. operations, and ZeaKal’s successful trials of its PhotoSeedTM technology. Second, our graduation to the TSX and the launch of our Strategic Advisory Board signalled our company’s continued maturation. Finally, we
made four new investments, including two in ag-tech, which we believe is a critical component of the value chain that is poised to disrupt the cannabis sector.”

On the quarter, RIV generated $2.9 million from royalties, interest income and lease payments while operating expenses were down 16 per cent sequentially to $3.5 million.

The company also recorded impairment charges of $11.2 million on its equity method investees as a result of factors including COVID-19, a slowdown in retail distribution in Canada and the US and a slower-than-expected sales ramp for certain entities.

Schilling said the Q4 came in under his estimates, where he was calling for $3.8 million in operating income and EBITDA of $68,000 compared to the resultant $2.6 million and negative $2.5 million, respectively.

At the same time, Schilling remained upbeat on the company, saying, “RIV remains well capitalized with cash in hand of $46.0 million at the end of the quarter. Management highlighted during the earnings call that it will likely sit on its cash balance in the meantime as it continues to monitor the development in the industry i.e. the roll out of 2.0 products in Canada.”

“RIV anticipates continued volatility in its financial results as its investees continue to ramp up operations, as well as due to inherent volatility of investments in the cannabis industry and the unknown impact of COVID-19,” Schilling said.

Looking ahead, Schilling is calling for fiscal 2021 operating income and EPS of $15.3 million and negative $0.01 per share, respectively. At press time, his $2.50 target represented a projected 12-month return of 85 per cent.