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Friday, September 06, 2019 12:37:26 PM
The analyst says the scale of FONE’s operations should result in an all-in cash cost per gram of less than $1.00, which he says compares very favourably to competitors that operate smaller-scale greenhouses and indoor operations. Once Flower One reaches scale, McLeish says that it should be generating EBITDA margins above 30 per cent. (All figures in US dollars unless noted otherwise.)
“We had been applying a 10x EV/EBITDA multiple to value Flower One to take into account the execution risk associated with building out a successful large scale greenhouse operation. However, this execution risk has been mitigated as evidenced by our recent tour of the NLV Greenhouse. Additionally, the closing of the C$57.5 million convertible debenture financing and the recently announced licensing agreements and brand partnerships will help to underpin our financial forecasts through 2020. As a result, we are increasing our EV/EBITDA target multiple to 11x from 10x,” says McLeish.
The analyst is calling for fiscal 2019 revenue and EBITDA of $134.9 million and $45.1 million, respectively, and fiscal 2020 revenue and EBITDA of $251.1 million and $90.6 million, respectively. McLeish is maintaining his “Buy” rating and moving his target price from C$5.50 to C$6.50, which represented a projected return of 117 per cent at the time of publication.
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