I have seen 4 or 5 point by point rebuttals of the fraudalent hit piece by good journalists and below, out just yesterday, from the Hayward Group. Google it.
I am not too good with links, but copied below is just a couple of pages of The Hayward Group analysis released just yesterday.
Stick with your talking points or do some DD and learn!
Neal Gilmer, MBA, 416-507-2759, ngilmer@haywood.com
Ethan Spence, 416-507-2328, epsence@haywood.com
RESEARCH REPORT | January 10, 2019
SITE VISITS
Asset Review Highlights Value Disconnect
OUR TAKE: Aphria shares remain undervalued following the developments over the past month.
Most notably the impact of a short-report in early December caused a sharp sell-off as it called into
question the existence of certain LATAM assets purchased earlier in 2018. Due to the lingering
uncertainty, we took it upon ourselves to visit some of Aphria’s assets in Jamaica, Argentina, Colombia
and Canada. Overall, the site visits were largely in line with our expectations and confirm that there
are operations on-going with the assets at varying levels of development. In addition, we toured the
Aphria One facility and reiterate our view that the Canadian assets are not appropriately valued in the
current share price.
KEY HIGHLIGHTS
? Site Visits of LATAM and Leamington Assets: During the month of December we
conducted site visits to Colombia, Jamaica, Argentina and Leamington. Overall our review
of the assets was broadly in-line with our expectations. In our opinion the Colombian
asset is likely the asset that holds the most opportunity for Aphria as a result of the
LATAM acquisition. We note that at the time the transaction was announced, the shares
issued represented 6.3% dilution to shareholders versus the ~15% decline in share price
since closing on November 30th
.
? Canadian Assets Hold Significant Value: As we highlighted in our note on December 4th
,
it is our view that the Canadian assets alone represent significant value and warrant a
higher share price from current levels. We outline our view and scenario analysis later in
this note.
? Continued Operational Execution: Our thesis on Aphria has focused on its operational
execution over the past four years. To our knowledge there is no other public LP that has
reported 11 consecutive quarters of positive EBITDA serving the Canadian medical
cannabis market. While that string has been disrupted as costs ramped up to support the
adult-use market, its past execution gives us confidence it should be capable of
generating strong EBITDA going forward.
OUTLOOK
? Continued Volatility: We anticipate that Aphria will continue to trade with volatility as
investors digest the various developments in the near-term, which include its Q2/19
results, an expected response by the independent committee and further developments
with respect to the offer from Green Growth Brands.
RECOMMENDED ACTION
We recommend accumulating shares at current levels
? We recommend that investors with a high risk tolerance consider accumulating shares
of Aphria as it is our opinion that the shares are currently undervalued. Our review of
the Company’s assets backstops our fundamental view that there has been an
overreaction on the sell side over the last month that has resulted in the current share
price trading at a discount to the Canadian assets alone, creating a unique buying
opportunity.
Price
Target
$3.25
VALUATION
We use a 12x EV/EBITDA multiple on our
F2021 EBITDA estimate then discounted by
10%.
Aphria Inc.
(APHA-T, APHA-NYSE)
SECTOR: Special Situations
CATALYSTS
1. January 11, 2019 – Fiscal Q2/19 financial results released
2. Near Term – Response from independent committee of the BoD with respect to the short-
report
3. On-going – Potential M&A and partnerships
STOCK PRICE $8.92
RATING BUY
TARGET PRICE $13.00
SCENARIO ANALYSIS
Downside
Scenario
Current
Price
Price
Target
$6.00 $8.92 $13.00
? 33% ?46%
KEY STATISTICS AND METRICS
52-Week High/Low $24.75/$4.76
YTD Performance 13.63%
Dividend Yield N/A
Shares O/S 248.3M (Basic)
260.5M (FD)
Market Capitalization $2,323.2M
Cash $314M
Debt $55M
Enterprise Value $2,065.0M
Daily Volume (100 Day Avg) 11,620,181
Currency C$ unless noted
HAYWOOD ESTIMATES (FYE May-31)
2019E 2020E 2021E
Revenue ($M) 138.4 564.6 770.0
Adj. EBITDA ($M) 26.4 208.7 272.8
EPS FD ($) 0.07 0.47 0.70
PROJECTED RETURN 46%
RISK FACTOR Very High
Aphria Inc. (APHA-T)
Neal Gilmer, MBA, 416-507-2759, ngilmer@haywood.com
Ethan Spence, 416-507-2328, epsence@haywood.com 2
INVESTMENT THESIS
In our opinion Aphria has established itself as one of the leaders in the industry
on many fronts. While it was the 14th licensed producer in Canada, in our view
it has been at the forefront of various industry accomplishments. The Company
has been successful in scaling up its production capabilities, capturing market
share and generating positive EBITDA.
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