US cannabis name Harborside (Harborside Stock Quote, Chart, News CSE:HBOR) has kept its “Speculative Buy” rating from ATB Capital Markets after the company’s latest quarter, but analyst Kenric Tyghe dropped his target from C$3.00 to C$2.00 on a revised forecast.
In an update to clients Wednesday, Tyghe said the clouds look to be lifting for Harborside.
Oakland, California’s Harborside is one of the oldest cannabis companies in the US, opening a dispensary in 2006 after securing one of the first six commercial licenses issued in the country. With a presence in California and Oregon, Harborside has currently five dispensaries and a cultivation and production facility in Salinas, California.
The company reported its second quarter financials on September 1, posting adjusted EBITDA of $0.6 million on gross revenues of $16.1 million. Those numbers compared to Q1 of 2019 at negative $1.7 million and $12.5 million, respectively. The week before, Harborside released its Q1 2020 results, which featured adjusted EBITDA of $0.4 million on revenues of $14.6 million. (All figures in US dollars except where noted otherwise.)
Harborside also released its restated financials for the years 2017, 2018 and 2019 on August 11, with the result being that its cease trade order (CTO) has now been fully revoked and trading resumed on the CSE on September 2. As well, the company announced with the Q2 release that it has started a strategic review of the company’s business and opportunities in the marketplace, with an eye to maximize shareholder value
via potential M&A activity, equity financings and the potential repurchase and financing of the company’s facility in Salinas.
“We will continue to focus on both our cultivation and retail level initiatives, which have improved the overall product mix we sell and increased the sell through of Harborside produced products on our store shelves. We enter the second half of 2020 with strong momentum and look to continue delivering high-quality products to our customers while driving strong value creation for our shareholders,” said CEO Peter Bilodeau in a press release.
On the quarter, Tyghe called Harborside’s results reflective of strong sequential revenue growth dovetailing with gross margin expansion of ten per cent to 46.9 per cent, despite COVID-relate pressures. The analyst said retail sales were primarily driven by enhanced merchandising and pricing initiatives, which supported an improved product mix and higher sell-through of Harborside brand products. Tyghe also noted better performance at the company’s Salinas facility, which if it continues would drive a step change in sentiment on the company via improved earnings visibility.
At the same time, the Q2 came in lighter than expected on EBITDA, according to the analyst, who was calling for $1.5 million versus the resultant $0.6 million (revenue was in line with his estimate).
“Given Harborside’s H1/20 performance and current levels of visibility on H2/20, we are revising our 2020 revenue estimates to $65.6 million versus $60.0 million and adjusted EBITDA to $4.3 million versus $5.6 million. The imputed trajectory and margin profile support revisions to our 2021 estimates as well,” Tyghe wrote.
“Our estimates, which reflect a higher contribution from the Company’s wholesale segment, is offset by H2/20 margin compression on the change in revenue attribution, as wholesale is currently a modestly lower margin business than retail. We have also revised our SG&A margin assumptions, taking a more conservative view on the traction and progression of cost savings initiatives, given the Company and management team are expected to essentially remain in show me territory for at least a couple of quarters,” he wrote.
At press time, Tyghe’s C$2.00 target represented a projected 12-month return of 233.3 per cent.