Cantor Initiates Neutral Coverage On Village Farms International, Says Its Entry 'Into Other Segments Makes Sense'

Village Farms International VFF shares gained 390% over the last 12 months, and year-to-date the stock is up 42.44%.

The Analyst: Cantor Fitzgerald’s Pablo Zuanic initiated coverage of Village Farms with a Neutral rating and a price target of $20.

The Thesis: Back in November, Village Farms completed its acquisition of Pure Sunfarms, which has a 3% share of the branded recreation market, as per its third-quarter data. “The company’s flower product has garnered a ~14% on-line share in ON, given its mix of high-potency, quality, and value,” Zuanic writes.

The company is trying to achieve the same in brick-and-mortar stores across other provinces, and with other products.

Zuanic added that thanks to Village’s low-costs and methodical approach, the company had 25% EBITDA margins for the cannabis unit, which is the best result in Canada and place the company among a small bunch of cannabis companies with positive EBITDA in the Canadian cannabis sector.

“If we assign zero value to the non-Canadian cannabis assets, we note that the stock trades well above the peer group, despite its small size,” Zuanic noted.

“There is nothing wrong with pursuing a value strategy, in our view; VFF has succeeded with pretty much a single brand and single format strategy so far,” the analyst said, adding it could be questioned if this is a “sustainable strategy.”

“In this sense, the entry into other segments makes sense, even though the company remains focused on the low end of the market.”

VFF Price Action: Village Farms shares were 3.33% down at $14.53 at the time of writing.