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BZAM is a Speculative Buy in cannabis, says Clarus

Look for Canadian cannabis company BZAM (BZAM Stock Quote, Charts, News, Analysts, Financials CSE:BZAM) to hit positive EBITDA by the end of the year, according to Clarus Securities analyst Noel Atkinson, who reviewed the latest quarterly numbers from BZAM in a Thursday update to clients.

BZAM, which has a number of brands and cannabis facilities along with retail in Manitoba and Saskatchewan, reported its first quarter 2023 results on Tuesday. Revenue was a record at $24.1 million, which was up 40 per cent sequentially and represented the first full quarter post the merger between BZAM and The Green Organic Dutchman. 

“Further to the progress we made in Q1 2023, we continue to execute on our plans to improve margin and reduce SG&A, including the headcount rationalization and cost savings measures we have just implemented this month, which we expect to generate about $2.5M in annual savings across both cost of goods sold and SG&A,” said CEO Matt Milich in a press release.

Atkinson said the $24.1 million topline was slightly ahead of his forecast at $23.9 million, while adjusted EBITDA at negative $3.9 million was a major improvement over the Q4/22 which was at negative $6.8 million but a greater-than-expected loss compared to Atkinson’s estimate at negative $2.4 million.

The analyst noted that BZAM is maintaining its #6 market share position in Canada’s adult-use market at 5.2 per cent of adult-use cannabis products sold at retail across the country, and Atkinson said he expects solid revenue growth from the company over the rest of the year.

On a comps basis, Atkinson sees BZAM as undervalued. He estimates BZAM to be currently trading at 0.8x 2023 EV/Sales, 0.7x 2024 EV/Sales and 11.6x 2024 EV/Adjusted EBITDA, which compares with its Canadian cannabis peer group at 1.4x 2023 EV/Sales, 1.2x 2024 EV/Sales and 12.5x 2024 EV/Adjusted EBITDA.

“Our target price is unchanged at $0.65 per share, or 1.5x 2024e EV/sales – well within the peer group’s current range of average 2024e EV/sales multiples, and very reasonable for a legal CPG company with meaningful expected organic growth over the next couple of years and rising Adj. EBITDA margins as well,” Atkinson said.

“Some of this discount reflects BZAM’s smaller revenue base, and its lack of cross-border listing, but we think the delta is excessive. We note that April 2023 retail sales of BZAM adult-use cannabis products across Canada (as measured by Hifyre) were larger than Canopy Growth, HEXO or Cronos,” he said.

By the numbers, Atkinson is expecting BZAM to reach positive adjusted EBITDA of $0.1 million in the fourth quarter of 2023, with revenue reaching $26.6 million. For the year, he is calling for negative $7.6 million in EBITDA on $99.4 million in revenue.

Atkinson reiterated a “Speculative Buy” rating and $0.65 per share target, which represented at press time a projected one-year return of 189 per cent.

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