Is Aurora Cannabis' 'Business Transformation Plan' Yielding Results?

Aurora Cannabis ACB ACB reported a 45% year-over-year plunge in consumer cannabis net revenue, while its total net revenue in the fourth quarter of fiscal 2021 amounted to CA$54.83 million ($43.4 million), down from CA$68.43 million in the same period.

On the other hand, medical cannabis net revenue grew by 9% from the prior-year period due to continued growth in the international medical business. On a sequential basis, the consumer segment posted an 8% improvement despite lockdowns in key markets that affected overall cannabis sales.

The Analyst

BofA analyst Heather Balsky lowered her price objective to CA$10/US$7.95 from CA$11/US$9.12, due to the lower estimates while reiterating a Neutral rating on Aurora's stock.

Balsky lowered her F22/23E sales by 11/19% to $279/358 million to "reflect a more gradual sales recovery in Canada."

Aurora On Verge Of Achieving Positive EBITDA?

After years of facing profitability challenges, the company now expects that its cost-cutting efforts will result in achieving positive adjusted EBITDA by the first half of 2022.

For over a year, the company has been undertaking its 'business transformation plan' following the retirement of former CEO Terry Booth.

One of its latest moves was shutting down of its Edmonton, Alberta-based facility and laying off some 8% of its workforce.

Adjusted EBITDA for the fourth quarter of 2021 was a loss of CA$19.26 million versus a CA$33.35 million loss in the prior year's corresponding period.

The Canadian cannabis giant is targeting $60 million - $80 million of annualized incremental cash expense savings, including $30 to $40 million in fiscal 2022 and the remainder by the second quarter of fiscal 2023, the analyst highlighted, adding that "about 40% of the savings are tied to the expense reductions and will begin to flow through in F2Q23.

"These will take a few quarters to fully realize as it takes time for inventory to be drawn down," Balsky said, estimating Aurora achieving a positive adjusted EBITDA of CA$5.2 million in the second quarter of fiscal 2022 and an EBITDA gain of CA$7.2 million in the last three months of the same fiscal year.

Consumer Cannabis Market As Key Industry Growth And Valuation Driver

With the company's "relatively stable and profitable" medical business, Balsky called it "an asset."

"Aurora is well-positioned because ~70% of its medical sales are from customers that receive reimbursement, which is an outsized proportion vs. peers," Balshy explained, stressing the potential the Canadian company has to grow the "reimbursed customer base by attracting additional veterans and employee groups."

Another analyst, Cantor Fitzgerald's Pablo Zunaic, recently wondered, "how the stock would trade if Aurora just excited domestic rec, and it positioned itself as a global medical MJ specialist?"

While indisputably admitting that Aurora's medical business is attractive, Balsky thinks "the consumer cannabis market will be the key industry growth and valuation driver long-term given its size potential."