Aphria earnings proves M&A thesis for CROP!!!
This morning Aphria is out with its latest earnings, for the qtr. ended 8/31/18. Sales came in at C$13.29 million. That's up nicely year-over-year, up 117%, but sequentially (qtr. over qtr.) sales were up 10.5%. Trailing 12-month sales are up 19.4% sequentially....
This means that Aphria's EV/12-month trailinig sales multiple just moved from ~130x to 109x. Even if revenue growth improves to 15% (sequentially) from 10.5%, EV/Sales would still be at ~94x. And this is for a company that has the cheapest valuation (lowest EV/Sales ratio) among Majors including -- Tilray, Canopy Growth, Aurora, Cronos, HEXO...
From 130x (May 2018 trailing 12-month sales) to 94x (estimated Nov. 2018 trailing 12-month sales) in 6 months.... this improvement is not happening fast enough! APH and other Majors have to make acquisitions, they have to buy third-party revenues to get their valuations down. If APH were to acquire CROP next year it might look something like this...
APH's trailing 12-month EV/Sales multiple a year from now (Aug. 2019), assuming 15% sequential revenue growth, would be ~64x. If they bolted on C$40 M of sales from CROP by paying 5x that $40 M figure, then APH's pro forma EV/Sales would improve markedly to ~42x. So, from ~64x to ~42x by taking out CROP, that's a no-brainer for APH.
That would be a C$200 M takeout of CROP next year, or C$1.69/shr (with existing 117.6 M shares outstanding). Assuming equity dilution from the exercise of warrants and options and new share issuance, let's say pro forma shares by mid 2019 go up by 60 M to 177.6 M, then a C$200 M takeout of CROP impies C$1.12/shr. Before readers become alarmed about an extra 60 M shares, don't get overly excited... there would be significant cash proceeds coming in if those shares are issued (note-- warrants/options are mostly at very attractive price points).
But, if the cannabis space is robust next year, APH might find itself in competition to acquire companies like CROP. In other words, maybe the 5x multiple of CROP's C$40 M in sales would be 7x-12x? Or, maybe CROP would get credit for more forward looking sales and get taken out at 5x $80 M of forward sales (say forward sales from 6/30/19-6/30/20)..... You get the idea. Even with moderate equity dilution, these scenarios imply north of C$1/shr. next year. And, 5x $80 M in forward sales, including an incremental 60 M shares issued, would be C$2.24/shr.
One more thing about an extra 60 M shares, (I'm not saying this will happen) but if it does, the capital that would be raised would be deployed to generate even more sales, so C$80 M in forward sales could be a conservative number.
Make no mistake, this is all just math porn -- CROP has no revenues yet!
FInally, someone on this board posted a sales estimate for 4th qtr. 2018 of C$10 M.... I'm assuming C$5 M to be safe, especially because CROP's portion of the sales have to be collected from CROP's tenants, which might ential some logistics and some time. The key of course is CY 2019 & 2020. I'm thinking that C$20-C$60 M in sales (net to CROP) next year covers a wide range of possibilities. And, while sales could certainly be less than C$20 M due to execution problems, sales could also be well north of C$60 M if all goes well and pricing remains firm.
That's C$20-C$60 M in sales in CY 2019 from Washington State, California & Nevada alonel... mostly from Nevada. So, zero sales from cannabis-infused beverages, zero sales from Jamaica and zero sales from Italy...
AI
