Aphria’s (APHA) renaissance came to a halt on Wednesday after the Canadian cannabis producer posted a disappointing FQ4 earnings report.
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Aphria shares have been on a hot streak, almost tripling since bottoming out in mid-March. Hopes were high Aphria could repeat the previous quarter’s success when the cannabis player posted a net profit. Aphria was unable to meet those expectations. Reporting a steep loss of C$98.8 million, or C$0.39 per share, the figure came in far below the previous quarter’s C$5.7 million profit.Consequentially, shares sunk by 20% in the following trading session.
It is worth noting that a major part of the bottom-line drop was due to the CA$64 million in impairment charges which management put down as part of its international response to dealing with the coronavirus, alongside a revaluation of convertible debentures.
On the plus side, despite a 10% year-over-year drop in kilograms and kilogram equivalents sold, Aphria’s net revenue increased by 5% quarter-over-quarter and 18% year-over-year to C$152 million. Additionally, adjusted EBITDA in the quarter increased by 49% from C$5.7 million to C$8.6 million.
For Jefferies analyst Owen Bennett the last metric is of vital importance.
“The one area where there can be little debate, and clearly stands out as peer best, is EBITDA performance, where Aphria recorded the 5th straight quarter in +ve territory, as well as further sequential improvement in cannabis EBITDA despite a slowdown in sales.”
The analyst went on to add, “We have written many times before, Aphria is one of a few names that approached the flower market with proper consumer segmentation, while it was also able to scale up without impacting quality. It has also been performing very strongly in vapes, and with an impressive innovation pipeline for new offerings… While there may be some disappointment in the cannabis sales number and an announced US$100mn ATM, we think any concerns would be misplaced”
So, what does it all mean for investors? Bennett reiterated a Buy on Aphria shares alongside a C$9.00 ($6.74) price target. Investors could be pocketing a 41% gain, should Bennett’s thesis play out in the year ahead. (To watch Bennett’s track record, click here)
Despite the quarterly setback, sentiment toward Aphria on Wall Street remains soundly positive. Based on Buy ratings only – 5, as it happens – Aphria has a Strong Buy consensus rating. The average price target comes in slightly higher than Bennett’s, and at C$9.37 ($7.04), represents possible upside of 47.5% over the next 12 months. (See Aphria stock-price forecast on TipRanks)
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