Though he expects near-term industry headwinds to weigh on its sales through the first half of the year, Desjardins Securities analyst John Chu thinks Rubicon Organics Inc.’s "positioning remains strong".
“COVID-19-related restrictions (eg store closures/curbside pick-up) have been reinitiated across parts of the country, which should negatively impact sales,” he said. “This also likely has a higher proportionate impact on the sale of premium products as these are generally in-store purchases with the assistance of a budtender. As such, management expects this to impact 1Q and 2Q sales, with hopes that the recent inventory restocking by provincial wholesalers and broad distribution of the vaccine will help alleviate sales pressure heading into 2H.
“While these catalysts are unlikely to offset the industry headwinds for 1Q as noted above, they may help mitigate the impact of these headwinds in 2Q and help set up the company for strong growth in 2H21 and 2022. Ramp-ups in new provinces and markets, new product launches and new SKUs should help offset some of the headwinds. The industry is also entering a seasonally strong spring period and should be boosted by what is generally peak summer season too.”
In a research note following Tuesday’s release of its fourth-quarter 2020 results, Mr. Chu dropped his 2021 sales projections “meaningfully” based on the lower-than-expected sales expectations. He’s now estimated $32.4-million in sales, down from $56.8-million previously. That led to a decline in his adjusted EBITDA forecast to $2.6-million from $12.8-million. His 2022 estimates slid to $72.5-million and $25.6-million, respectively, from $82.3-million and $28-million.
“We expect sales to ramp up in 2H21 and to reflect more normalized market dynamics in 2022. We forecast Rubicon to reach positive EBITDA by 3Q21, a quarter later than the 2Q timeline management has provided,” he said.
Keeping a “buy” rating for the Vancouver-based company’s shares, he trimmed his target to $4.75 from $5. The current average is $4.81.