Tyghe delivered an update to clients on June 29 where he maintained his “Outperform” rating and one-year target of $8.00, which at press time represented a projected return of 168 per cent.
TerrAscend cultivates, processes and distributes medical and rec cannabis to consumers in the US and Canada, with operations in four states and seven provinces and a focus in Pennsylvania and New Jersey.
The company released on May 28 its Q1 2020 results for the period ended March 31, 2020, coming in with net sales up 34 per cent sequentially and up 139 per cent year-over-year to $34.8 million.
Adjusted EBITDA came in at a surprise $4.9 million compared to a loss of $5.5 million a year earlier and marked a transformational milestone for the company in getting to profitability, according to CEO and executive chairman Jason Ackerman.
“These results were driven by the strong performance of our US operations, which continue to perform ahead of plan. With our Pennsylvania expansion complete and construction of our New Jersey facilities well underway, we're confident in the ongoing growth targets that we have set. We remain focused on prudently investing our capital in the markets where we see the greatest and most profitable opportunities,” said Ackerman in a press release.
As Tyghe showed in his report, TerrAscend’s $34.8-million top line was in line with the consensus at $35.2 million, while the $4.9-million EBITDA was well above the consensus loss of $1.1 million and Tyghe’s own Street-high forecast of $1.2 million.
Tyghe noted that the positive EBITDA came from strong operating leverage notably in the company’s US business (representing 89 per cent of revenues) where adjusted EBITDA margins came in at 25.0 per cent.
The analyst reported that TER’s momentum on the East Coast is strong, with three new dispensaries expected to open soon in Pennsylvania, while management continues to explore opportunities in adjacent states.
On TER’s expansion efforts, Tyghe said management’s moves will be “very measured and cautious and will neither chase assets, nor partake in land grabs in currently in-vogue states.”
“We have increased our Q2/20e revenues estimate from $43.5 million to $46.3 million and adjusted our margin assumptions to better capture the expected margin profile through 2020e, based on our read through of management commentary on the results call,” Tyghe wrote.
“In addition, we believe it’s worth highlighting that the non brokered private placement announced on May 19, 2020, was upsized from US$30.0 million to US$37.0 million, and is oversubscribed, with the final tranche expected to close on or around June 5, 2020. On the combination of recent capital raising activity and positive adjusted EBITDA generation, TerrAscend has not only more than fully funded its 2020e requirements, but also has the flexibility to look at select, tuck in acquisitions in adjacent markets the likes of Maryland, New York, Ohio and Connecticut,” Tyghe said.
For the full fiscal 2020, Tyghe is now forecasting revenue of $188.4 million and adjusted EBITDA of $24.0 million.
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