Stifel GMP has repeated its 'Buy' rating on The Valens Company (TSX:VLNS, OTCQX:VLNCF) with a target price of C$5.25 due to its greater confidence in the company’s ability to endure near-term headwinds.
In a note to clients, the broker's analysts said they also came away from an investor day more comfortable with Valens’ new guidance that it will reach profitability by the fourth quarter of fiscal 2022 and generate $225 million in full-year sales in 2023 at a 10% EBITDA margin.
They said: "This comes at a time when shares are nearing tangible book value, and the company managing through the impacts from the BC floods and supply chain inflation.”
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The analysts added: “However, FY22 is expected to be a banner year of sales growth after a busy 2021 of M&A filling white spaces, with VLNS deploying a similar amount of capital as its current EV (enterprise value).”
Stifel’s analysts noted that Valens is the fastest growing licensed producer of cannabis products by provincial listings, having won 180 listings since the first quarter of 2021 to have 255 in January 2022.
Additionally, they said management expects 20-25% of market share to be available for capture in the next 18 months given the consolidation trend with poor integration and operators exiting the industry, creating a significant opportunity for the company.
Valens also plans to enter the $630 million Québec market and has discussed the need to collaborate with a local partner to access retail store shelves, they said.
They concluded: “Matched with better liquidity from its NASDAQ listing and the financial resources to weather these temporary storms, we believe the risk/reward opportunity for investors is quite appealing.”
Contact the author at stephen.gunnion@proactiveinvestors.com