Organigram is still a pass, says Haywood

The outlook for the next few quarters is a little dimmer for Canadian cannabis licensed producer Organigram (Organigram Stock Quote, Charts, News, Analysts, Financials TSX:OGI), according to Haywood Capital Markets analyst Neal Gilmer, who reveiwed the company’s latest quarterly results in an update to clients on Wednesday. Gilmer maintained a “Hold” rating on the stock while lowering his 12-month target price from $1.60 to $1.25 per share, representing at press time a projected return of 54 per cent.

Moncton, New Brunswick-based Organigram delivered its second quarter fiscal 2023 financials on Tuesday for the period ended February 28, 2023. The company posted net revenue up 24 per cent year-over-year but down sequentially by nine per cent to $39.5 million. Adjusted EBITDA of $5.6 million compared to $1.6 million a year prior.

Organigram said it’s continuing to see pricing pressure in the Canadian cannabis market, particularly with regard to large format flower products.

“We are pleased with our results in a quarter with typical seasonality. Our market position remains competitive, supported by our leading brand portfolio, strong international sales and customer-focused innovation,” said Beena Goldenberg, CEO, in a press release.

Gilmer called the quarterly results mixed, saying the $39.5 million topline was below his forecast at $42.1 million as well as the consensus call at $43.5 million, while EBITDA at $5.6 million was above his estimate at $4.4 million and the Street at $4.7 million. 

Gilmer said Organigram saw some softness in its adult-use sales and noted that management is aiming to not lower prices to irrational levels in response to price compression. The analyst said international sales to Australia and Israel were higher than expected for the fiscal Q2 but are expected to return to levels seen in the prior two quarters.

On management’s decision not to engage in irrational pricing, Gilmer said he agreed with the approach but that sales growth may in turn be impacted until conditions normalize. As such, he is taking a slightly more conservative view on OGI’s revenue growth into fiscal 2024.

By the numbers, Gilmer is calling for full fiscal 2023 revenue and EBITDA of $168.2 million and $22.4 million, respectively, and fiscal 2024 revenue and EBITDA of $186.4 million and $26.4 million, respectively.

“Our Hold recommendation is based on our outlook for the overall Canadian market as well as general investor sentiment,” Gilmer wrote.

“Organigram has taken actions to diversify its revenue composition that could support an expedited path to profitability. We highlight a solid balance sheet and wait for evidence the Company is recapturing market share in adult-use that would lead to accelerated revenue growth. OGI may be a key name to watch should overall market sentiment improve,” he said.