Decibel Cannabis is a Buy, says Haywood

Fans of Decibel Cannabis Company (Decibel Cannabis Company Stock Quote, Charts, News, Analysts, Financials TSXV:DB) should be pleased with the latest quarterly numbers, according to Haywood Capital Markets analyst Neal Gilmer, who maintained a “Buy” rating on the stock in a Monday update to clients. Gilmer said Decibel continues to gain market share in Canada and is improving margins at the same time.

Calgary-based Decibel reported its first quarter 2023 results on Monday, which featured record net revenue of $27.1 million, representing year-over-year growth of 63 per cent and sequential growth of five per cent. The company, which has the Qwest line of premium products along with Prairie Records retail locations in Alberta and Saskatchewan, said it took 6.7 per cent of the Canadian market share over the quarter, putting it in third place.

“We’ve started the year off with another strong quarter that represents both significant year over year acceleration as well as sequential growth.” said CEO Paul Wilson in a press release. “Our New, Unique and Innovative products, assortments and formats continue to resonate with both new and existing customers. This provides ample momentum as we approach a number of material and additional catalysts this summer, when we expect to build market share and brand position in Canada, and in turn continue to leverage our business internationally”.

Gilmer said the $27.1 million topline was higher than expected, where he had forecasted $26.5 million and the consensus expectation was $26.3 million. Adjusted EBITDA at $6.8 million was also above Gilmer’s call at $6.0 million and the Street at $5.9 million. Gilmer said extract revenue was up 18 per cent sequentially to $23.6 million while flower revenue was down 31 per cent to $2.4 million and retail revenue was down 39 per cent to $1.4 million. 

“We have updated our model following the results and a call with management,” Gilmer wrote. “We have bumped up our revenue for 2023 following the strong Q1 offset by slightly higher SG&A providing only a modest bump in EBITDA. For 2024, our revenue estimate increases four per cent for 13 per cent year-over-year growth, while EBITDA remains relatively unchanged due to slightly higher operating expenses.”

Gilmer is forecasting Decibel’s topline to go from $79.3 million in 2022 to $116.7 million in 2023 and to $131.8 million in 2024. EBITDA is projected to go from $17.0 million in 2022 to $29.8 million in 2023 and to $36.4 million in 2024.

Gilmer retained a 12-month target of $0.40 per share, which at press time represented a projected return of 186 per cent.

“In our opinion, Decibel has demonstrated the quality of its brands by capturing strong market share relative to the peer group,” Gilmer wrote. “As Decibel garners more awareness within the investor base, we believe the valuation will reflect this strong position in the market.”