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Re: MERCURIAL post# 4701

Thursday, 03/26/2020 11:53:08 AM

Thursday, March 26, 2020 11:53:08 AM

Post# of 6727

Medipharm Labs has price target cut at PI Financial

MARCH 24, 2020 BY JAYSON MACLEAN

MediPharm LabsPI Financial is still bullish on MediPharm Labs (Medipharm Labs Stock Quote, Chart, News TSX:LABS), but the massive market pullback has the firm rejigging its numbers on the stock.

These are tough days in the cannabis space with stocks at all-time lows ( Old news!! ) and questions abounding over how profitable the legal market can really be. One thing for sure, having a strong balance sheet is a necessity, and it’s something to praise about cannabis extraction and processing company MediPharm, according to PI Financial analyst Devin Schilling, who on Tuesday provided an update to clients on LABS.

MediPharm, which operates five extraction lines at its home base in Barrie, Ontario, and has a throughput of 300,000 kg of dried cannabis per year, has two segments: a private label wholesale extracts business and a white label extracts business featuring extracts, filling services and distribution of custom-formulated derivatives.

The stock took a bounce on Tuesday on news that its 80-per-cent-owned Australian subsidiary has received permits to import a large shipment of cannabis oil. Management said the event will help support the company’s international supply chain and open up its Australian market.

“We have made a strong statement about our international intentions and our focus on the medicinal cannabis market in Australia since signing our first supply deal with AusCann Group Holdings Ltd. – a Australian pharmaceutical company with operations across all facets of the medicinal cannabis value chain,” said Pat McCutcheon, MediPharm’s CEO in a press release.

“The most recent agreement with Compass Clinics is one of a pipeline of opportunities we have identified across Australia, and other emerging cannabis markets, that are available to us today and in the future as we receive other international regulatory permits and additional GMP certifications,” McCutcheon said.

Ahead of MediPharm’s fourth quarter earnings due next Monday before the market opens, Schilling said he is expecting the company’s numbers to take a hit from the statement of claim filed in late January against an LP for the payment of outstanding amounts of about $9.8 million ( HEXO ). Schilling said the period of concern is likely non-payment from November 2019 onwards and thus could impact Q4 numbers.

Schilling has called for revenue down ten per cent sequentially to $39.0 million and EBITDA of $8.6 million, whereas the consensus forecast is for EBITDA of $6.7 million on a top line of $36.3 million. The analyst said margins should be relatively flat at about 34 per cent, while the majority of Q4 revenue will likely come from wholesale cannabis oil through LABS’ private label program.

Schilling said he likes the fact that LABS is well capitalized.

“As of Sept 30 2019, LABS had over $42 million in cash and also over $40 million in receivables (which does carry some credit risk). We believe LABS has sufficient capital to execute on its growth strategy and the company’s strong balance sheet is a key differentiator among its cannabis peers,” Schilling wrote.

With the update, the analyst maintained his “Buy” rating but dropped his price target from $7.25 to $5.00, saying the decrease is attributable to lower peer multiple due to the selloff in the market. At press time, the $5.00 target represented a projected 12-month return of 179 per cent.