Aphria is set to release their fiscal Q2/18 results (quarter ending November 30) around the middle of January. As is normally the case, there is not expected to be a press release of results or an earnings conference call.
Stock Prices Has Been Going Up After Quarterly Reports – Aphria has seen its share price increase 14% and 2% the day after reporting its last two quarterly results. Fiscal Q4 (quarter ended May 2017) saw cash costs reach a Canadian industry low of $0.79 per gram by competitors’ definition ($1.11 by Aphria’s definition) and a 181% Q/Q increase in EBITDA to $2.83M. As a result, Aphria’s share price closed up 14%. Three months later in mid-October, Aphria once again delivered very low cash costs ($0.95 per gram) and knocking an eighth consecutive positive EBITDA quarter of $1.5M to earn the informal title of EBITDA Gorilla. On October 16, 2017 Aphria share price closed up 2% at $7.92.
We have also updated our forecasts for fiscal 2018 and 2019, which can be seen below. The bolded figures are current estimates.
Source: Perspectec
Major supply agreements with other LPs contribute to increase in Kilograms Sold and Revenue – Being the low cost supplier, we see the company having inelastic demand longer-term.
Source: Perspectec
Aphria has grown with the Canadian Market – Aphria has seen a sustained Q/Q growth in Kilograms sold, trending generally with the Canadian market. They have maintained a market share of 6% to 8% of the Canadian marijuana market the last six quarters. The primary driver to Aphria’s revenue is kilograms sold and revenue has traditionally tracked kilograms sold.
Source: Perspectec and Health Canada
We expect Aphria’s market share to increase to 9% in fiscal Q2/18 – Aphria’s market share saw an uptick from 6% the last two quarter to 7% in Q1/18 driven by wholesale kilograms reaching 191 kilograms sold, the first time Aphria has reported this number. Contract arrangements with Medlab Clinical Limited, Tetra Bio-Pharma, Scientus Pharma and Nuuvera should all contribute to an increase in both wholesale grams sold Q/Q and market share.
We see fiscal Q2/18 kilograms sold to increase to 21% by fiscal Q2/19, driven both by wholesale shipments, retail sales and to a lesser extent onboarding new patient.
Source: Perspectec and Health Canada
Source: Perspectec
Source: Perspectec
Impact of U.S. partnerships not material at this point – Aphria’s U.S. partnerships will not be in their consolidated results as their U.S. ownership levels are under 20%. An improvement in the business and increase in valuation could cause an increase in Aphria’s EPS due to a gain on sale on long-term investments similar to Q1/18. However the stock trades more on sustainable growth, and we would expect changes in U.S. assets to have a muted effect on the stock price until U.S. Federal legislation clears up.
Since early 2017, Aphria has signed a number of major supply agreements, many of which have come into effect since the end of Aphria’s Q1/18. We expect the following deals to positively affect revenue in fiscal Q2.
Deal 1: Major wholesale supply agreement with HydRx Farms, Ltd (Scientus Pharma) for over 25,000 fully grown medical cannabis plants over the next 12 months. The first delivery was thought to have occurred in the middle of Aphria’s fiscal Q2/18 and we expect it to generate over $1.2 million of revenue in each full quarter of shipments, with gross margins consistent with previously executed wholesale agreements.
Aphria will deliver roughly 25,000 fully grown medical cannabis plants annually. Assuming 1 fully grown medical cannabis plant yields 2 KGs, first delivery is in Mid October 2017 and the average wholesale selling price is $4.85, Aphria will supply roughly 129 KGs ((((50,000 kilograms / 12 months in a year)*1.5 months first delivery))/$4.85 wholesale price).
Deal 2: Distribution agreement with Tetra Bio-Pharma Inc to sell Rx Princeps announced October 18, 2017; Tetra’s unique blend of dried medical cannabis used in its PPP0001 clinical trials. Since November 16, 2017 Rx Princeps has been available for sale through Aphria and is expected to generate around $1.5 million in sales in fiscal 2018 upon its initial launch. Through promotion and education efforts in Quebec, New Brunswick and parts of Ontario, Tetra estimates that over 8,000 patients will start using Rx Princeps under prescription from their doctors over the next twelve months.
Aphria expects $1.5 million in sales in fiscal 2018 from about 8,000 patients annually. We believe Aphria will sell about 94 KGs (((1.5M in sales / 12 months in a year)/667 patients a month)*0.5 remainder of months in quarter)
Deal 3: Successful shipment of cannabis oil to Australia’s Medlab Clinical Limited announced October 24, 2017. The supply was for Medlab’s forthcoming human trial to test management of intractable pain in oncology patients. The first trial of its kind globally.
Since no other information was given, this has not been included in the model.
Deal 4: Global strategic partnership with Nuuvera Corp, a Canadian-based global cannabis business. As part of the partnership, Aphria entered into a supply agreement with Nuuvera to supply annual requirements of 1,500 KGs, growing to 17,000 KGs when Aphria completes its four-part expansion plan in 2018.
We see this deal contributing 188 KGs for the remaining period in Aphria’s Q2/18 ((1,500 KGs / 12 months in a year)*1.5 months remaining).
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For the purposes of complying with NYSE, NASDAQ and all Self-Regulatory Organizations, Perspectec Inc. has assigned the following rating system BUY, HOLD/NEUTRAL, SELL for the securities which are the views expressed by an analyst, Independent contractor, and or an employee of Perspectec Inc. The information and opinions in these reports were prepared by Perspectec Inc. or an analyst, independent contractor. Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Perspectec Inc. makes no representation as to its accuracy or completeness.
