Valens is well established for 2022, according to ATB Capital

The stock has fallen significantly in recent months, but ATB Capital Markets analyst Frederico Gomes still sees value in The Compagnie de Valens (Valens stock market quote, chart, news, analysts, TSX financial data: VLNS). Gomes maintained its “Outperformance” rating but lowered its target price to $ 3.75 / share from $ 4.25 / share for a potential return of 81% in a client update Thursday.

The Valens company engages in the development and manufacture of cannabinoid-based products in accordance with Health Canada guidelines in cannabis operations (extraction, post-processing and white-label manufacturing under standard processing and cultivation licenses) and analytical testing segments.

Gomes’ latest analysis comes after The Valens Company released its financial results for the third quarter of 2021, which Gomes noted as being in line with expectations.

“Valens is undergoing strategic changes as it enters the market for CBD in the United States and branded products in Canada,” said Gomes. “With the closing of the Green Roads Acquisition and the Citizen Stash Acquisition expected to close in Q4 / FY21e, we believe Valens has the elements in place to accelerate growth and achieve profitability.”

The company’s financial results were marked by revenue of $ 21 million, slightly above the ATB projection of $ 20.5 million and the consensus projection of $ 20.7 million, with sales net up 12% quarter over quarter on US cannabis sales. producer Green Roads, which grossed $ 4.7 million; Gomes notes that his absence would have resulted in a 13% drop in sales with a drop in business-to-business sales as the company aims to move away from smaller contracts.

Meanwhile, the company’s EBITDA recorded a loss of $ 6.2 million, which was worse than the consensus expectation of a loss of $ 4.2 million, but still exceeded ATB’s projection of a loss of $ 7.2 million.

“With our largely built operational platform and a critical mass of provincial listings now in place, our focus has shifted to operational efficiency, the implementation of automation initiatives and volume growth. to drive improved margins and positive EBITDA over the next few quarters, ”said Tyler Robson, chief executive officer, co-founder and chairman of The Valens Company in the company’s October 13 press release.

“During the third quarter, we strategically moved away from smaller, underperforming B2B partners, resulting in a 29% decline in B2B LP revenue quarter over quarter. Instead, we took a fewer, bigger and better approach and focused on building closer relationships with larger licensed producer partners to drive efficiencies and profitable growth, ”said Robson. .

Gomes said Valens’ market share has trended upward in recent months, eclipsing 1.5% in September after breaking 1% for the first time in June. The company’s largest positive market share comes from its beverage line, which accounts for more than eight percent of the domestic market share in this category.

With the company’s approach shifting towards larger contracts and an increased focus on business-to-consumer sales, Gomes has changed its overall financial projections, lowering its revenue estimate for 2021 to $ 82.9 million. of $ 85.2 million, which would be lower than the $ 83.8 million reported in 2020. Gomes also lowered his estimate for 2022 from $ 220.4 million to $ 149.2 million, as well as the 2023 estimate of $ 278.4 million to $ 205.3 million.

Meanwhile, with a positive quarterly EBITDA projection in place by the last quarter of 2022, Gomes also changed its annual EBITDA projections to a loss of $ 20.1 million in 2021 (previously 11.1 million), a loss of $ 14.6 million in 2022 (previously a profit of $ 36.6 million). with an EBITDA margin of 16.6%) before turning positive in 2023 to $ 17.4 million (previously $ 56 million) to produce an EBITDA margin of 8.5%, thanks to the improvement gross margins and a higher sales base conducive to operating leverage.

Gomes notes a number of important drivers of the company’s potential growth for 2022, including a 37% increase in provincial registrations in the last quarter, growth in the cannabis markets in Canada and the United States, and improvements in operational efficiency and procurement. chain integration.

Overall, Gomes believes 2022 will be an important year for The Valens Company from a financial standpoint.

“In the US, we believe the long-term outlook for the US CBD market is compelling, offering growth opportunities and an option for favorable regulatory developments in the CBD and THC markets,” Gomes said. . “As Valens integrates its supply chain and improves its operational efficiency, we believe the margins will gradually increase. “

Overall, The Valens Company’s share price rose 14.6% during the year, reaching a high of $ 4.00 / share on May 10.

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