Village Farms is “incredibly undervalued”, Beacon says

Its Q2 numbers are in the books and Beacon analyst Doug Cooper thinks there is a lot of money to be made on Village Farms International (Village Farms International Stock Quote, Chart, News, Analysts, Financials NASDAQ:VFF).

On August 8, VFF reported its Q2, 2024 results. The company posted EBITDA of negative $3.6-million on Consolidated Revenue of $92.2-million.

“We are driving strong momentum in our Canadian Cannabis business by building on our undisputed leadership in dried flower to further close in on the number one market share position nationally1,” said CEO Michael DeGiglio. “During the second quarter, we grew retail branded sales by 35%. Notably, we have solidified our number two national market share rank in pre-rolls and further strengthened share in key provinces1. In 12 months, we have improved to number two in British Columbia (from four) and number four in Alberta (from eight) and have maintained our number one position in Ontario and number two position in Quebec.”

Calling the stock “incredibly undervalued”, Cooper says it is clear that VFF’s cannabis segment is expanding.

“Without a doubt, the highlight of the earnings report was the performance of its Canadian cannabis segment. The company grew net sales by 45% with retail branded sales +35%. It was the only top-5 producer to gain market share sequentially. Furthermore, it maintained its #2 position nationally but, we believe, could overtake the #1 spot by YE. We have said for years that VFF would ultimately dominate the Canadian cannabis retail landscape. Both its scale and growing experience are enabling it to be the industry’s lowcost producer of high-quality product. Like the three most important factors in real estate (location, location, location), the 4 most important factors in cannabis are low-cost, high quality, low-cost and high quality…as one can see, we are starting to see a real separation as companies like ACB have essentially left the recreational market. We note that both VFF and TLRY saw a dramatic increase in their wholesale revenue (C$11.3m and C$17m respectively) as the number of companies who actually (successfully) grow cannabis in Canada shrinks. Excluding wholesale, VFF’s retail branded sales have substantially narrowed the gap with TLRY at
C$41.8m v/s C$53m (versus C$31.1m and C$56m last year). In addition, recall that VFF’s growth is entirely organic while TLRY benefitted y/y from its acquisition of HEXO, indicating to us that TLRY continues to lose market share.”

In a research update to clients August 19, Cooper maintained his “Buy” rating and price target of (US) $3.00 on VFF, implying a return of 175% at the time of publication.

The analyst thinks VFF will post Adjusted EBITDA of $7.8-million on revenue of $329.8-million in fiscal 2024. He expects those numbers will grow to Adjusted EBITDA of $22.6-million on a topline of $351.1-million in fiscal 2025.