Continuing market share gains in Canada’s cannabis trade look good on Moncton, New Brunswick-based Organigram Holdings (Organigram Stock Quote, Charts, News, Analysts, Financials TSX:OGI), according to Raymond James analyst Michael W. Freeman, who delivered a report to clients on the company on Tuesday and kept an “Outperform” rating on the stock. Freeman lowered his target price on OGI from $3.00 to $2.00, however, saying an updated revenue forecast as well as peer-related valuation changes were the impetus.
Ahead of quarterly earnings from Organigram scheduled for Thursday, Freeman said it looks like the company rose to the #2 spot in terms of market share by adult-use sales for the quarter ended November 30. That puts OGI ahead of Hexo and now closing the gap on top dog Tilray. Freeman attributed the upgrade to Organigram’s recent capacity expansion, improvements on yield and ongoing efficiency improvements at the company’s Moncton campus, all of which have helped OGI increase the throughput of its high-quality, indoor flower while also reducing cultivation costs.
“We see OGI as one of Canada’s best-run cannabis businesses, with increasingly impressive ownership of Canadian market share and escalating international activity. While changes to U.S. cannabis legislation remains at a stand-still, we view OGI as one of the best quality (and best-priced) names in the entire cannabis complex,” Freeman wrote.
Freeman said the company has been investing in the expansion of its Laurentian Cannabis facility and is aiming for 2,400 kg of flower and about two million hash units of capacity for 2023. Altogether, Freeman said OGI is expected to invest about $29 million in capex projects over the year, mostly at the Laurentian site and its Manitoba-based edibles manufacturing centre.
Freeman also commented on OGI’s news from November that it had signed a new export agreement with Canndoc/InterCure, one of Israel’s largest medical cannabis players, for the continued supply of dried flower. The new agreement is for a commitment of 10,000 kg with an option to order up to an additional 10,000 kg over the course of three years, with OGI having delivered over 2,800 kg since July of last year.
“We anticipate international medical cannabis being a major growth driver for OGI during FY23,” Freeman wrote.
By the numbers, Freeman is forecasting OGI to go from revenue of $146 million in fiscal 2022 (ended August) to $169 million for fiscal 2023 and to move from $3 million in EBITDA for 2022 to $7 million in 2023.
“We update our Revenue estimates and value OGI via multiples analysis vs. CDN cannabis peers, using a 2.0x 2024E EV/Rev. multiple, implying $1.99/sh, which we round to $2.00, reducing our target price (was $3.00),” Freeman said.
“With OGI’s leading Canadian cannabis business, rapidly growing international revenue and improving margins, we maintain our rating at Outperform,” he said.
At press time, Freeman’s new $2.00 target represented a projected one-year return of 83 per cent.