HITI on its way to becoming “dominant”, Beacon says

Following the company’s second quarter results, Beacon Securities analyst Doug Cooper remains bullish on High Tide (High Tide Stock Quote, Chart, News, Analysts, Financials TSXV:HITI).

On June 13, HITI reported its Q2, 2024 results. The company posted Adjusted EBITDA of $10.0-million on revenue of $124.3-million, a topline that was up 5%, year-over-year.

“I am thrilled to report that in an environment where many cannabis companies, including some of our retail competitors, have been forced to seek bankruptcy protection, our team has been able to deliver positive net income in Q2 while also generating record-breaking free cash flow,” CEO Raj Grover said. “In fact, over the past four quarters, we have generated $22.7-million in free cash flow, fuelling our strong organic growth. We accomplished this despite Q2 being a seasonally slower quarter with two fewer days as we tightly managed our G&A while also rapidly growing our store count and increasing our Canadian retail market share to 10.9 per cent. We remain the highest revenue-generating cannabis company reporting in Canadian dollars with adjusted EBITDA up 52 per cent, bricks and mortar revenue up 11 per cent, and consolidated revenue up 5 per cent year over year, despite industry sales being down 4 per cent during the same period. All of this has allowed us to end the quarter with a record cash position of $34.5-million. As previously communicated, we set an aggressive target to open 20 to 30 stores by the end of this calendar year. We are already the second-largest cannabis retailer globally by store count, and our team is accelerating strategic and accretive M&A, focusing on opportunities of various sizes to further add meaningful size and scale to our store network.”

Cooper says HITI is on its way towards becoming a dominant Canadian cannabis retailer.

“In our opinion, share gains will continue and accelerate given it is opening new stores and other stores/chains continue to struggle/seek CCAA,” he wrote. “Margin growth should also continue as noted above as well as a push into private label (now allowed in AB). While we are tweaking our revenue expectations lower ($520m/$39.4m vs $553m/$38.8 for FY24, and $592m/$49.5m vs $629m/$48.7m for FY25), we are tweaking our EBITDA estimates higher. Based on our FY25 EBITDA forecast of $50m, stock trades at 5.6x, a 50% discount to other leading Canadian retailers.”

In a research update to clients June 18, Cooper maintained his “Buy” rating and price target of $6.00 on HITI, implying a return of 74% at the time of publication.

The analyst thinks HIYI will post Adjusted EBITDA of $39.4-million on revenue of $520.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $49.5-million on a topline of $591.7-million in fiscal 2025.