Strong Liquidity, Higher Online Sales to Support Business Performance: Aphria Inc. (TSX: APHA), is engaged in the production and distribution of medical and adult-use cannabis, cannabis-derived extracts, and derivative of cannabis-related products across North America. The group operates through brands like Solei Sungrown Cannabis, RIFF and Good Supply.

As people stay indoors due to the ongoing COVID 19 restrictions, APHA witnessed an 18% spike in its E-commerce sales for its medical products. During the early days of the pandemic, retail sales showed a solid performance on account of sales growth from ‘pantry loading’, which was partially offset by a seven days closure of retail units. Going forward, on account of the retail close down, the company will be focusing on its E-commerce segment.

The company has strong liquidity position with cash balance of more than CAD 515 million, which would help the company to weather the crisis. Meanwhile, the company has reduced its near-term capital expenditure in order to support its working capital requirements.

Q3FY20 Financial Highlights: APHA declared its quarterly results, wherein the company reported Revenue of CAD 144.42 million, surged 96.3% on y-o-y basis. The growth was driven by strong momentum (higher sales and price increase) from adult-use cannabis products and tremendous growth from wholesale cannabis products, partly offset by the lower average retail selling price of medical cannabis products. APHA reported higher gross profit, supported by top-line growth, which further enhanced gross margin to 41.3%, from 32.8%. Operating income stood at CAD 8.72 million, as compared to an operating loss of CAD 89.26 million. Notably, the previous period included an impairment charge of CAD 58.04 million. Net income stood at CAD 5.70 million, as compared to a loss of CAD 108.21 million in the previous corresponding period. The company reported cash and cash equivalent of CAD 515.10 million, as compared to the CAD 107.50 million in Q3FY19.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The company is witnessing strong online sales as people stay indoors, and we expect the momentum to sustain in the coming quarters. The company has strong and innovative product line, and is witnessing healthy growth within the adult-use cannabis segment. Investors should take a note that the company maintains strong liquidity, which is likely to help the company in navigating the current crisis. However, given the COVID-19 led uncertainty the company has withdrawn its FY20 guidance and we believe that there might be a short-term pressure on the group’s performance, therefore considering the risk and return trade off we have given a Hold recommendation

APHA One-Year Daily Price Chart (Source: Thomson Reuters)

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