Cannabis names have done well in recent months and that includes Canadian retailer High Tide (High Tide Stock Quote, Chart, News, Analysts, Financials TSXV:HITI), which have vaulted a monster 225 per cent since the start of January. And it’s not over yet for HITI, according to ATB Capital Markets analyst David Kideckel, who in a report to clients on Tuesday raised his rating and increased his target price.
High Tide is a Calgary-based company with retail outlets under the Canna Cabana and KushBar names, a wholesale business in smoking accessories and lifestyle products and online retail platforms Grasscity and CBDcity, The company is currently the largest adult-use cannabis retailer in Canada with 72 stores in Ontario, Alberta, Manitoba and Saskatchewan and has industry investments from cannabis LPs Aphria and Aurora Cannabis. The company took a significant step forward with the acquisition of retailer Meta Growth, first announced last August and completed in November.
High Tide released its fourth quarter and fiscal 2020 (year ended October 31) results on Monday, reporting Q4 net revenue up 118 per cent year-over-year to $24.9 million and adjusted gross profit up 112 per cent year-over-year to $8.7 million. For the fiscal year, revenue was up 166 per cent to $83.3 million and adjusted gross profit was up 172 per cent to $30.8 million.
By the breakdown, High Tide’s Q4 saw $22.6 million in sales from its Retail segment, $2.2 million from Wholesale and an immaterial amount from Corporate, while geographically, the fourth quarter had $20.6 million in sales in Canada, $4.1 million in the United States and $0.2 million internationally. For the fiscal year, those figures were $68.4 million in Canada, $14.3 million in the US and $0.6 million internationally.
Reflecting on the year, president and CEO Raj Grover called fiscal 2020 High Tide’s best ever.
“We continued to run our operations tightly, ending the year off with the record levels of revenue and Adjusted EBITDA. We are excited about our trajectory in the United States and continue to prioritize and look for opportunities in that market,” Grover said in a press release.
“Our integrated value chain which includes Cannabis Bricks & Mortar stores, e-commerce platforms for consumption accessories and hemp derived CBD products, along with manufacturing and distribution of licensed and proprietary consumption accessories, experienced sizeable growth on all fronts,” Grover said.
Looking ahead, the company said it remains focused on the Ontario market and is encouraged by provincial regulators’ move to increase the pace of store openings from 20 to 30 per week. High Tide now aims to have 30 stores open in Ontario by the end of September of this year.
High Tide said its Alberta buildout has picked up the pace due to the pandemic-related construction slowdown in Ontario. On its US business, the company said it current revenue run-rate, pro-forma of its acquisition of the Smoke Cartel, is at $25-million.
Reviewing the quarterly numbers, Kideckel called them a positive for the company as they demonstrated continued sales growth and profitability. Revenue came in right at Kideckel’s estimate at $24.9 million (the consensus was $24.1 million), while adjusted gross profit of $3.6 million was above the analyst’s $3.2-million estimate and the Street’s $3.3-million estimate.
Kideckel said there’s likely more good news to come in the company’s fiscal Q1.
“We note that the Q4 results did not include contributions from the Meta Growth acquisition, which closed subsequent to the quarter end, as well as the recent acquisition of Smoke Cartel in the US. In our view, the integration of these acquisitions will provide a growth tailwind to HITI’s forthcoming results. As such, we believe that HITI is now entering a new era in its history, with an improved balance sheet and an accelerating growth outlook,” Kideckel wrote.
The analyst noted HITI’s current cash balance at $38 million and said the company is in a good position to execute on its domestic and international expansion strategy, noting HITI’s pending application to list on the NASDAQ, a move which would expose the stock and company to a broader pool of investors to support its US expansion.
On a comparative basis, Kideckel estimated HITI to be trading at a 4x multiple of its fiscal 2021 EV/Sales versus Canadian peers at 17x for large caps and 8x for mid-caps and versus its US peers at 7x for large-caps and 5x for mid- and small-caps.
“We believe that HITI’s outlook is supportive of continued growth in sales. The Company provided revenue guidance of $37-$38 million in Q1/FY21, which implies a ~50-per-cent growth from Q4/FY20,” Kideckel said.
“We believe that HITI’s sales growth in Canada will continue as overall cannabis retail sales increase, COVID-19 lockdown restrictions ease and HITI’s retail store footprint expands. In addition, we view a step-up increase in sales stemming from the acquisition of SMCK which, according to the Company, was expected to generate US$7.4 million in sales in 2020. The SMCK is expected to close this month,” he wrote.
With the update, Kideckel moved his rating from “Speculative Buy” to “Outperform” and raised his target from $1.20 to $1.40 per share, which at press time represented a projected one-year return of 69 per cent.