Decibel Cannabis keeps “buy” rating at Ventum

Following a business update, Ventum Capital Markets analyst Andrew Semple has maintained his “Buy” rating on Decibel Cannabis (Decibel Cannabis Stock Quote, Chart, News, Analysts, Financials TSX:DB).

On July 8, DB announced a corporate update in which it said it would initiate a number of initiatives designed to improve shareholder value.

“Unfortunately, our stock has taken a hit over the last while. This is disappointing and shareholder value is something we will focus on,” CEO Benjamin Sze said. “Our balance sheet needs to improve and I believe we are taking the right steps to do so. Decibel has consistently outperformed its peers by market share, revenue generation and profitability despite what our valuation may suggest. We are implementing operational and strategic enhancements that we anticipate will form the basis of a stronger and more resilient company allowing us to grow and take back market share.”
The analyst summarized the development.

“Decibel Cannabis Company Inc. (“Decibel” or “the Company”) announced a business update covering several strategic initiatives it plans to undertake to improve shareholder value creation,” he said. “Decibel indicated it would revamp its product offering, rationalize costs, more closely manage its net working capital, and expand sales to international markets. We were pleased to see the update, which we view as reaffirming the Company’s prospects for a stronger H2/24 period ahead, and likely marking an inflection point after several quarters of declining profitability. We believe the measures announced today will streamline operations, improve the balance sheet, and support profitable growth moving forward.”

In a research update to clients July 8, Semple maintained his “Buy” rating and price target of $0.25 on DB.

The analyst thinks the company will post Adjusted EBITDA of $17.6-million on revenue of $93.4-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $20.6-million on a topline of $107.8-million in fiscal 2025.

“We maintain our BUY rating and price target of $0.25/shr,” Semple concluded. “Our price target is based on a DCF valuation with a 13% discount rate, and a terminal year FCF multiple of 12.5x. Decibel trades at a valuation multiple of 3.7x our 2024E EBITDA estimate, the lowest multiple among our tracking group of cannabis companies. Though reasonable concerns about its balance sheet remain, if Decibel grows or even maintains its current profitability, there would be an exceptional value to shareholders. Given our view that the Company is at an inflection point for profitability with a stronger H2/24 ahead, we believe this is a compelling entry point for investors.”

Disclosure: Nick Waddell owns shares of Decibel Cannabis.