Recently Sprott Equity Research has initiated a coverage on GTEC Holdings (TSXV:GTEC) because GTEC is set to become a significant supplier of ultra-premium cannabis as its new facilities come online. This roll out of capacity should result in dramatic growth in revenue and profitability which should drive the stock higher, says the coverage.
In a recent research report published by Sprott, the overall investment thesis for GTEC is based on the following:
- GTEC possesses a top quality management team with a track record of producing ultra-premium flower at scale.
- Value of near term production increase is not reflected at current valuation level.
- Retail assets could provide upside to our forecast.
- They see GTEC as a take-out candidate.
Sprott’s analyst Dr. Alan Ridgeway also pointed that GTEC’s cultivation experts have years of experience growing ultra-premium cannabis under Canada’s medical program and in other legal jurisdictions within the U.S. As a result, he believes GTEC will be one of the few LPs capable of consistently supplying the market with high end ultra-premium flower, which he expects to be in short supply and command premium pricing. In addition, given the strict Canadian regulations related to marketing products, he believes quality will be the key attribute required to build brand awareness and loyalty.
Dr. Ridgeway also did a forecast and said GTEC is currently trading at an attractive 3.9x 2020 EBITA, which is quite a discount comparing to small to mid-cap LPs which trade around 13.5 times.
The report sees GTEC as undervalued, and expects the shares to rerate as the company receives regulatory approvals for its new facilities and production comes online.
He has given GTEC a Buy rating and a one-year target price of $2.00 per share.
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