OGI stock upgraded to “Buy” at Haywood

Following a major investment into the company, Haywood analyst Neil Gilmer has upgraded Organigram (Organigram Stock Quote, Chart, News, Analysts, Financials TSX:OGI) to a “Buy”.

On November 6. Organigram announced a $124.6-million investment from BT DE Investments , which a subsidiary of BAT (British American Tobacco). The arrangement follows previous, smaller investments from the same parties.

“We are excited to bring this transformative transaction to Organigram’s shareholders, reinforcing our commitment to delivering shareholder value. This investment bolsters an already-strong balance sheet and solidifies our position as a leading cannabis company. In addition, this deepens the strategic partnership between Organigram and BAT, and we look forward to continuing to leverage BAT’s global capabilities and scientific expertise,” CEO Beena Goldenberg said. “Jupiter, the strategic investment pool, is expected to accelerate Organigram’s ambitious growth plans, enabling further geographic, technological and product expansion.”

Gilmer said this development is a clear positive.

“The latest investment from BAT will enable Organigram to continue growing its topline, optimizing existing operations, and remain agile to capitalize on new opportunities, he argued. “The Company’s pro-forma balance sheet will grow to a cash & short-term investment balance of $199.4M, of which $94.3M will be unrestricted cash, with no material debt. Organigram is well positioned in the competitive Canadian market with a balance sheet primed to enter new markets.”

In a research update to clients November 6, the analyst maintained his $3.00 price target on OGI, but upgraded the stock from “Hold” to “Buy”. The price target implied a return of 59 per cent at the time of publication.

Gilmer thinks Organigram will post EBITDA of $9.3-million on revenue of $154.9-million in fiscal 2023. He expects those numbers will improve to EBITDA of $16.2-million on a topline of $170.4-million the following year.

“We are upgrading to Buy as OGI further solidifies its balance sheet at a notable premium to market and better positions it to execute on its growth strategy,” the analyst concluded. “In an industry with limited access to capital we view an increased investment from a strategic partner positively, ahead of new product launches that should drive market share and revenue growth next year, while also insulated from the challenging market with a strong cash position.”