Cantor Fitzgerald Remains 'Neutral' On Sundial Growers After Earnings Report, Sees Potential Upside In Its 'CA$1B War Chest'

Sundial Growers SNDL reported its second-quarter net loss of CA$52.3 million ($41.8 million) on Thursday, which compared to CA$60.4 million in the same period last year. Excluding an asset impairment charge on the Olds facility of CA$60.0 million, net income for the quarter would have been CA$7.7 million, the company noted. 

Net revenue for the quarter was CA$14.86 million. Of this, cannabis revenue was CA$9.15 million but it missed analysts’ consensus revenue estimate of CA$9.43 million. Adjusted EBITDA loss was CA$200,000. In the preceding first quarter, Sundial had reported positive adjusted EBITDA for the first time since the company’s inception.

The Analyst

Cantor Fitzgerald’s Pablo Zuanic reiterated a ‘Neutral’ rating on Sundial's stock. 

The Thesis

While restating Cantor’s Neutral rating on the stock, the analyst acknowledged “the optionality of the investment portfolio and CA$1 billion war chest.”

Sundial also reported less than 2% branded adult-use share in Canada and continued gross margins, which is why Zuanic sees the potential upside for the stock in its future use of its $1 billion reserved funds. 

For comparison purposes, the analyst highlighted that Canopy Growth CGC has “only” CA$490 million in net cash and Cronos Group CRON has questionable $1.1 billion in net cash.

Last month, Reddit's favorite cannabis company raised its investment in SunStream Bancorp by $350 million to a total of $538 million, it bought retailer Inner Spirit for $112 million and has taken several small stakes in other cannabis enterprises.

“During 2Q, the company’s investment arm deployed $352Mn generating $9.4Mn in investment revenue and said the company’s portfolio of credit-related investments yielded a 13% annual return,” Zuanic explained.

In relation to its cannabis operations, Sundial aims to advance profitability by “balancing the mix and reaping productivity gains.”

In the second quarter, the company’s recreational cannabis sales to the provinces grew 20% sequentially, but its total marijuana sales of CA$9.2 million fell 8% from the previous quarter because of reduced bulk sales. 

“Our estimates/views are unchanged ahead of Friday’s conference call,” the analyst concluded.

The Price Action 

Sundial’s shares were trading 8.47% lower at 76 cents per share at the time of writing Friday morning.

Photo: Courtesy of CRYSTALWEED cannabis on Unsplash