Post by
WealthBuilder99 on Sep 13, 2020 12:55pm
Share Buybacks
I think Supreme shoulder consider implementing share buy-backs at current prices to create a floor and demonstrate confidence in the business. Supreme, as of last quarter, had $30m cash plus $35m undrawn on their credit facility, enough to purchase all of the shares outstanding at current prices. Of course, before even considering such an action, the company would need:
A) a clear path to profitability & positive cash flow (in Q2, Colin Moore said profitibiltiy within 12 months - I expect this was a conservative timeframe. I personally think Q1 at the latest)
B) Approval from creditors, or at least ensuring they don't breach any covenants on their credit facility
At this point, it seems to me, the most effective (and safest) use of capital would be simply investing in themselves (reducing the shares outstanding), if the above two criteria can be met.
7 Acres is currently being priced at less than 1/3 its book value, and remains one of the best cultivation assets in the sector. Village Farms, a peer, recently acquired the remaining unowned portion of Pure Sunfarms for $80m, implying a near $200m valuation (about the book value of 7 Acres).
All Supreme's peers are trading at $300-400m valuations - Supreme is gross undervalued on any basis. The company solidifying itself as a top brand, and is among the leanest LP's (of any of the top players), is very quickly approaching profitability & free cash flow, and with debt restructured, much of the risk is out.
I think in 6-12 months the share price will look very different.
Comment by
puppymonkeybaby on Sep 13, 2020 1:10pm
Nah that money is earmarked to feed that negative gross margin. Imagine buying back shares, depleting what little cash on hand they do have... just to turn around and do another equity raise to stay afloat.