from: Monday’s analyst upgrades and downgrades MPX Bioceutical Corp. (MPX-CN) brings the potential for diversified U.S. exposure at an attractive valuation, according to Canaccord Genuity analyst Matt Bottomley.
He initiated coverage of Toronto-based MPX, which invests in wholly owned vertically integrated medical marijuana companies south of the border, with a “speculative buy” rating.
“We believe investing in vertically integrated operations is of particular importance, as owning retail distribution channels both increases operating margins and protects against wholesale pricing pressures and cultivation commoditization,” said Mr. Bottomley. “We believe successful branding strategies and retail distribution will eventually determine industry winners. MPX has already: (1) launched its own line of branded dispensaries; (2) owns an award-winning concentrate brand; (3) is a market leader in Arizona’s medical market; and, (4) is in the process of expanding its operations to three additional US states this year.”
Mr. Bottomley projects MPX to earn $21-million in revenue in fiscal 2018, which he expects will increase to $259-million by 2022, a compound annual growth rate (CAGR) of 86 per cent. He estimates it will become EBITDA positive in 2019 at $24-million, increasing to $86-million and by 2022.
“With $20-million of pro forma cash on the balance sheet (with another $36-million of in-the-money options and warrants), we believe MPX is funded for its existing growth/expansion initiatives as it becomes cash flow positive in FY2019,” he said.
“With a solid foundation as one of the market leaders in Arizona’s medical cannabis market, MPX has been quickly adding to its geographic exposure as a first-mover in Nevada’s recently legalized rec market, in Massachusetts’ soon-to-be-legal rec market, and in Maryland’s newly introduced medical market; equating to a total annual market potential of greater-than US$3.0-billion.”
He set a price target for MPX shares of $1.15. The analyst average target is currently $1.27.
“MPX currently trades at 6.6 times its two-year forward enterprise value-to-EBITDA, which is only a slight discount to its U.S. peers at 7.5 times but does not include potential near-term material expansion opportunities that are not baked into our forecasts,” the analyst said. “In addition, as cannabis remains a Schedule I narcotic in the U.S., MPX also trades at a steep discount to the leading Canadian Licensed Producers at 19.5 times, due to the increased complexities and risks inherent in U.S. markets. However, we believe MPX’s greater-than 65-per-cent discount to Canadian operators is largely overdone and its vast geographic exposure and growth profile could support a significant valuation re-rating over the long term.”