Ascend Wellness keeps “Buy” rating at Haywood

Following the company’s fourth quarter results, Haywood Capital Markets analyst Neal Gilmer has maintained his “Buy” rating on Ascend Wellness Holdings (Ascend Wellness Holdings Stock Quote, Chart, News, Analysts, Financials CSE:AAWH.U)

On March 12, Ascend reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $32.4-million on revenue of $173.1-million, a topline that was up 1.9 per cent over the same period a year prior.

“AWH had an excellent quarter and full year,” CEO John Hartmann said. “Our notable achievements translated into impressive financial success, with 2023 net revenue reaching $519-million, a robust 28-per-cent growth from the previous year. This growth was fueled by expansion of both retail and wholesale businesses, including a 21-per-cent increase in the retail business driven by store openings and strategic acquisitions and a 47-per-cent growth in the third party wholesale business as we increased our presence in New Jersey, Massachusetts and Illinois. Despite cultivation challenges faced in Franklin, N.J., earlier in the year, and initial pressure on our Illinois retail from the start of neighbouring Missouri’s recreational sales, we rebounded, achieving an adjusted EBITDA of approximately $107-million, reflecting 14-per-cent growth. Our key strategic initiatives and our commitment to execution ensured strong financial performance. In addition to this, we continue to see robust geographic diversification, and successful brand performance.”

Gilmer, in a March 12 update to clients, summarized the quarter.

“Ascend reported Q4 net revenue of $140.2M, slightly below our estimate of $143.3M. The quarterly revenue represents growth of 25.0% from the same period a year prior and a decrease of 0.8% Q/Q. Adjusted gross margin improved to 42.9% from 39.9% in Q3/23 and was above our estimate of 38.5%. Adjusted EBITDA was $32.4M for a margin of 23.1%, which is up from 20.9% in Q3 2023. Ascend’s adjusted EBITDA was above our forecast of $28.2M and consensus at $28.5M. The Company generated cash from operations of $16.7M and free cash flow of $8.4M, which excluded a benefit of the employee retention tax credit. Ascend finished the quarter with a cash balance of $72.5M and $309M in notes payable and approximately $568M in total debt when including lease liabilities. Ascend’s Q4 and 2023 results reflect the strong revenue growth over the year while also highlighting the transition to free cash flow generation. The gross margins continued to improve, building off the Q3 levels. We have made only minor adjustments to our estimates as management guidance was consistent with our forecast and expectations”

Gilmer has maintained his “Buy” rating and price target of $2.50 on Ascend.

The analyst thinks Ascend will post EBITDA of $124.0-million on revenue of $577.6-million in fiscal 2024. He expects those numbers will improve to EBITDA of $139.3-million on a topline of $612.1-million the following year.