HITI stock has massive upside, Echelon says

Following what he describes as “blowout results” Echelon analyst Andrew Semple remains more than bullish on High Tide Inc. (High Tide Inc. Stock Quote, Chart, News, Analysts, Financials TSXV:HITI).

On September 14, High Tide posted its Q3, 2023 results. The company reported Adjusted EBITDA of $10.2-million on revenue of $124.4-million, a topline that was up 30 per cent over the same period last year.

“I’m thrilled to report that our third fiscal quarter was the best in High Tide’s history since our inception, as we met our goal of generating positive free cash flow of $4.1-million this quarter, five months ahead of our previously communicated timeline, and hence becoming less reliant on macro and industry conditions,” CEO Raj Grover said. “This record FCF generation was a result of continued increases in our same-store sales growth, which have continuously outpaced the national average and totalled a tremendous 114 per cent over the last seven quarters. This quarter also included record revenue and adjusted EBITDA for our company, including reaching almost half a billion dollars in annual run-rate sales. Through our laser-focused execution, we continue to prove the strength of our innovative discount club model, which, in our opinion, is the best cannabis retail concept in the country. The Canna Cabana brand continues to gain popularity and is fast becoming a household name in Canada, given that our average store in the country now generates $2.8-million versus the national average of our peers, excluding Quebec, which is just $1.2-million. Our core bricks and mortar business line is supported by our uniquely diversified cannabis ecosystem and over 4.6 million global customers in Canada, U.S., U.K. and the EU. Our Elite customer base growth accelerated during this quarter, as we continue to focus on more in-store Elite offerings and related inventory.”

Semple explained why the quarter was such as success.

High Tide has now beat revenue estimates for 8 consecutive quarters while reporting positive adj. EBITDA in 14 consecutive quarters,” he explained. “The Company’s discount club retail strategy continues to be extremely effective. High Tide’s everexpanding retail ecosystem (e.g., the launch of Cabanalytics Consumer Insights publication) is further entrenching customer loyalty, along with opportunities to enhance LP relationships. Further, this quarter saw High Tide achieve the important milestone of recognizing positive FCF for the first time with $4.1M earned in the quarter, 5-months ahead of management’s communicated timeline. We view the positive FCF print as validating the bold strategic call management made in October 2021 to convert the entire Cabana Club store network to the discount club model. The significance of this important strategic decision is further emphasized by the fact that this milestone was achieved in the same quarter that High Tide’s largest peer filed for CCAA protection. We expect positive FCF generation to be sustained. With a $25.7M cash balance (15% of current market cap), High Tide is well capitalized to remain the leading retailer in Canada and execute on consolidation opportunities across the country, with small retail operators likely available for as little as 3.0-3.5x TTM EBITDA. ”

In a research update to clients September 15, Semple maintained his “Speculative Buy” rating and one-year price target of $9.00 on HITI, implying a return of 290 per cent at the time of publication.

Semple thinks HITI will post Adjusted EBITDA of $29.8-million on revenue of $486.0-million in fiscal 2023. He expects those numbers will improve to EBITDA of $36.0-million on a topline of $532.2-million the following year.