What Are The Value Drivers For Aurora Cannabis? Analyst Opines Post Q1 Earnings

After the market closed on Tuesday, Aurora Cannabis Inc. ACB disclosed its financial and operational results for the first quarter of fiscal 2022.

The Canadian cannabis giant reported roughly CA$60 million ($48.2 million) in total net revenue, representing a year-over-year decline of 11%. Adjusted EBITDA came in negative at CA$12,1 million, showing a 79% improvement from a CA$58.1 million loss in the prior year's period.

Moreover, the company posted a fiscal first-quarter loss of CA$11.9 million, or 6 cents a share, improving from a loss of 90 cents a share a year ago.

While the company's stock declined in after-hours on the heels of the disclosure, it gained some of its value during the regular session. Currently, it trades 3.72% lower at $7.2 per share.

The Analyst

Cantor Fitzgerald analyst Pablo Zuanic raised the price target on Aurora's stock to CA$10.75 from CA$9.60, after increasing sales estimates.

Moving Away From Value End In Domestic Rec

The analyst said that the company beat both sales and EBITDA market estimates "on the back of export strength," which was up 84% sequentially as well as a "lesser-than-expected drop in domestic rec sales."

"We expect mid-single-digit growth in rec as the company continues to expand its premium line," he added.

Being Canada's largest exporter at the moment and a leader in the domestic medical market, holding a 23% share, the company is "gradually moving away from the value end in domestic rec," the analyst continued.

"In the export markets, Israel accounted for half of the company's international business, with Germany also a large contributor," Zuanic explained.

Earlier this year, the company delivered a nearly CA$8 million weed shipment to Israel, which was one of the "largest single shipments of cannabis" received to date by the Middle Eastern country.

Cantek, the company's partner in Israel, "projects the local market could grow by 50% this year," Zuanic added.

In August, its subsidiary Aurora Germany GmbH and Ethypharm reported having delivered their initial shipment of cannabis to France's medical cannabis pilot program.

Meanwhile, Aurora Germany GmbH has been scaling up its presence in the U.K. medical cannabis market, while a recent move directed toward setting up a position in the Netherlands is only proof that the company is aimed at bolstering its international presence.

The analyst opined that Aurora "could be well-placed if it can retain its current status as Canada's largest exporter."

Sales & Value Projections

For the 2022 calendar year, Zuanic projects sales of CA$272 million.

Taking into account medical sales projections of CA$201 million, both domestic and exports, for fiscal 2023, and applying a 30% EBITDA margin and 25-30x EBITDA multiple, Zuanic calculated that the medical piece of Aurora only could be worth between $1.5 billion to $1.8 billion by June 2022, compared with a total current estimated value of $1.88 billion.

"We believe this is a stock to watch, but for now, we see better value elsewhere: among the Canadian LPs, Auxly at 2.3x and VFF's cannabis business at 3.6x, both on CY22 sales," Zuanic added.

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