Auxly Cannabis Group: Analyst Looks At Earnings And Market Share Goals

In a recent analyst note, Pablo Zuanic from Cantor Fitzgerald reviewed the earnings and market share goals of the Auxly Cannabis Group CBWTF XLY, a leading consumer packaged goods company in the cannabis products market headquartered in Toronto, Canada.

The Analyst

Zuanic rated Auxly as Overweight and raised the 12-month price target to C$0.49 from C$0.40 on increased forward sales estimates.

The Thesis

Auxly sales in October and November are up 30% vs. the third quarter when comparing monthly averages. Shipments lagged take-aways in the third quarter (+17% vs. +29%), thus, Zuanic expects “fourth-quarter reported revenues to be above the 30% take-away figure.”

“While we wait for the Dec data, we take our estimates ‘up’ and project fourth-quarter sales to increase 31% sequentially to C$32.1 Million (vs. FactSet consensus of C$28.9 Million). Notably, the company is gaining share both in premium flower and also in the ~$5/gram segment, and it too continues to gain share in vape (>25% share in October and November),” Zuanic explained, adding that sales momentum does not seem to be driven by focusing on unprofitable SKUs.

“That said, the break-even EBITDA target was pushed out by six months to mid-2022, as the company waits for automation equipment.”

Zuanic also noted that the stock trades at 1.5x the sales estimates for 2022, despite the company being the #4 player in Canada's recreational cannabis arena.

When compared to HEXO HEXO (HEXO.TO), Zuanic argues that Auxly is in a much better position and has much better momentum. “Our Dec 2022 price target of C$0.49 conservatively takes 2.5x on our sales estimates for 2023. As the industry consolidates, XLY could be a beneficiary on both sides of the M&A equation,” Zuanic concluded.

Auxly’s gross margins declined sequentially to 19% in the third quarter of 2021, and gross margins are at 27% which is in line with the 2021 target of 30%. According to Auxly’s management, gross margins were impacted by several operational changes in the third quarter, including product mix changes, higher costs associated with delays in the automation equipment, additional efforts to commission certain machinery resulting in lower realized sales volume (preventing op leverage gains), and costs associated with new products.

Price Action:

Auxly’s stocks traded higher 2.38%, at C$0.22 per share, at the time of writing, Tuesday afternoon.

Image By Ilona Szentivanyi