Aurora Cannabis Inc. (TSX: ACB) is a leading licensed producer of cannabis products focused on providing premium, innovative products to patients and consumers globally.

Key Updates:

• Reported lower revenue: The company failed to increase its sales and posted net revenue of CAD 50.4 million and CAD 171.1 million in Q3FY22 and 9MFY22, respectively, as compared to the CAD 55.1 million and CAD 190.4 million in Q3FY21 and 9MFY21, respectively. This indicates a lower demand for the company’s products, which remains the biggest concern.
  

• Depressing margins: In Q3FY22, the company reported a negative gross margin and negative EBITDA margin of 104.9% and 175.6%, respectively, as compared to the industry median of 66.3% and 26.4%, respectively. This indicates weak cost management. The group posted a negative operating margin of 1,975.5% v/s the industry median of 14.5%.

• Lengthy Cash cycle days: In Q3FY22, the company reported its cash conversion period of 193.1 days, significantly higher than the industry median of 130.9 days. This indicates that the company takes higher time to convert its investments to cash flows, which remains a key concern for the group.

  Valuation Methodology (Illustrative): EV to Sales based

Analysis By Kaline Group

Stock Recommendation:

The company failed to impress with its operating performance of Q3FY22, as the Canadian consumer business continues to be challenged due to the ongoing macro challenges of the market, including significant industry-wide excess inventory and increased pressure on older SKUs, which together have resulted in price compression. These has negatively impacted the overall operation, and hence we prefer to remain on the sidelines.

We have valued the stock using the EV to Sales-based relative valuation approach and arrived at a target price offering double-digit downside potential (in % terms). We have considered peers like Tilray Brands Inc, Labs etc. Hence considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock at the last closing price of CAD 1.93 on June 06, 2022.

One-Year Technical Price Chart (as of June 06, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

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