Aleafia Health Inc

Aleafia Health Inc (TSX: AH) is a vertically integrated cannabis health and wellness company which owns three cannabis product and cultivation facilities where it produces a diverse portfolio of commercially high-margin derivative products including oils, capsules and sprays.

Key Highlights 

• Expanding cannabis product portfolio: Throughout the reporting period, the Company undertook the expansion of its cannabis brand and product portfolio, including differentiated formats and new SKUs in the important value flower and pre-roll categories. The roll-out included the launch of an additional 13 new product SKUs, the health and wellness brand Noon & Night, and the adult-use value brand Divvy.
• Cementing footprints in Europe: On June 3, 2021, the Company announced that dried flower grown at its Niagara greenhouse facility had been exported to Germany, through an EU-GMP certified facility. Gaining access to Germany’s large legal cannabis market is an important breakthrough for Aleafia Health. While dried flower currently available in Germany is largely irradiated, the product shipped exceeded stringent quality standards and did not require irradiation, offering a competitive advantage in product quality.
• Reduction in Debt: The Company’s objectives is to ensure sufficient liquidity to support its financial obligations and execute its operating and strategic plans while maintaining healthy liquidity reserves. Moreover, the company recorded a significant improvement in debt through the repayment of CAD 25.0 million of convertible debt. As on June 30, 2021, the company’s total debt decreased to CAD 36.5 million compared to CAD 59.9 million on Dec 31, 2020.
  

  Financial overview of Q2 2021

Source: Company 

• In Q2 2021, the company’s cannabis net revenue stood at CAD 9.6 million, increased by 7% compared to CAD 8.9 million in pcp. The increase was due to increases in the sale of cannabis across the adult-use, medical and bulk wholesale sales channels.
• Gross profit increased enormously in the reported period to CAD 8.1 million against CAD 2.4 million in the previous corresponding period.
• On the back of higher operating expenses, the company witnessed higher operating loss at CAD 11.5 million compared to CAD 9.1 million in pcp.
• The company reported net loss of CAD 36,000 compared to CAD 4.0 million in pcp. The lower net loss was partially offset by gain on assets.
  

Risks associated with investment

The company operate in a highly regulated business and any failure or significant delay in obtaining applicable regulatory approvals could adversely affect the ability to conduct its business. Additionally, change in the laws, regulations, and guidelines that impacts the business may cause adverse effects on its operations. 

Stock recommendation

With strong sequential increase across all sales channels and a trend towards a more balanced mix with significant contributions from both the medicinal and adult-use cannabis sectors, Q2 2021 clearly illustrates the effectiveness of the enlarged product line. The firm is pleased to witness sequential revenue growth led by the recently introduced dried flower and pre-roll portfolio, while having a well-established range of cannabis wellness products. It also got access to the German medicinal cannabis market, which is a significant plus. We expect that sustained successful shipments will result in increased revenue and gross margins. On the valuation front, the stock is available at a forward EV/ Sales multiple of 1.8x against an industry median of 2.0x. Hence, considering the aforesaid rationales, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 0.30 on September 23, 2021, with double-digit (percentage term) upside potential. 

Technical Analysis Summary

One-Year Technical Price Chart (as on September 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

CIBT Education Group Inc 

CIBT Education Group Inc. (TSX: MBA) is one of Canada's largest education services and academic real estate companies. With a global presence since 1994, it has 45 business locations and operates a global network of 2,500 recruitment agents.

Key Highlights 

• Recorded higher revenue: In Q3 2021, the firm increased its revenue by 21% to CAD 16.4 million, up from CAD 13.6 million in the previous corresponding period. The strong performance of all segments contributed to the increase in revenue, which was slightly offset by the commission and referral payments sector.
• Rising college enrollments: As Canada reopens its borders to international students, Sprott Shaw College and Sprott Shaw Language College have witnessed a steady increase in registrations and enrollments for the fall 2021 and spring 2022 semesters. The majority of domestic students are also returning to university across the province, bringing a constant stream of rental tenants to GEC® buildings.
• Improving macros: The government of British Columbia has eased numerous restrictions on travel and social gatherings, as part of its efforts to kick-start the economy. Fortunately, the company's foreign education divisions have seen an increase in students signing up for the forthcoming Fall and Winter semesters. In addition, a large number of booking reservations for Fall 2021 have been received at its rental facilities. As a result, the firm forecasts higher sales in fiscal 2022 in the education segment, as well as in GECH's rental apartment and hotel operations. The occupancy rate at most GEC® locations has reached 90% to 100% due to the progressive reopening of the economy and Canada's borders. Furthermore, most rental prices have recovered to pre-COVID levels as of February 2020, which is a significant plus.
• Improving infrastructure at GEC® King Edward: The increase in the real estate property prices has increased the market value of the student housing portfolio and, as a result, the company's book value. To capitalize on this trend, the firm recently began construction on GEC® King Edward, which is expected to be finished in time for the fall 2022 school term, adding 180 beds and 46,000 gross buildable square feet to the portfolio.
  

 Financial overview of Q3 2021

Source: Company 

• In Q3 2021, the company posted higher revenues at CAD 16.4 million compared to CAD 13.6 million in the previous corresponding period. The growth in revenue was attributable to healthy performance from all the segments partially offset by commission and referral fees segment.
• In the reported period the group witnessed higher direct cost at CAD 6.8 million V/s 5.8 million in pcp and higher operating expenses at CAD 8.7 million V/s 7.8 million in pcp.
• Despite higher direct cost and operating expenses, the company registered an operating income of CAD 0.8 million compared to loss of CAD 0.07 million in pcp.
• On the back of higher finance cost which increased to CAD 4.1 million V/s 1.7 million in pcp, the company reported net loss of CAD 1.3 million compared to net income of CAD 1.1 million in pcp.
  

Risks associated with investment

The business's operations and cash flows are clouded by the return of Delta variant occurrences, and the company is heavily leveraged, implying pressure on its net margin and increased balance sheet concerns. 

Stock recommendation

During the first nine months of fiscal 2021, the market sentiment for the education and real estate sector continued to improve although the province of British Columbia remained under a state of emergency. In Q3 2021, the company witnessed healthy growth in its revenue, thanks to healthy performance from all segments partially offset by commission and referral fees segment. Furthermore, the company’s Sprott Shaw College and Sprott Shaw Language College have seen a steady increase in registrations and enrollments for the fall 2021 and spring 2022 semesters, which is a key positive. Additionally, its rental facilities received a high volume of booking reservations for Fall 2021. As a result, the company expects to boost its revenues going forward. On the valuation front, the stock is available at a forward PE multiple of 7.88x against an industry (Professional & Commercial Services) median of 16.7x. However, the company has higher debt in its book, which is an area of concern. Hence, considering the aforesaid rationales, we recommend a “Speculative buy” rating on the stock at the closing price of CAD 0.66 on September 23, 2021, with double-digit (percentage term) upside potential. 

Technical Analysis Summary

One-Year Technical Price Chart (as on September 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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