8 Aug

Why Aphria Expects Huge Revenue Growth

WRITTEN BY Rajiv Nanjapla

For fiscal 2020, Aphria (APHA) expects revenue in the range of 650 million–700 million Canadian dollars. Analysts project the company’s report revenue at $695.3 million in fiscal 2020, up 193.2% from $237.1 million in fiscal 2019. We expect Aphria’s expansion in both domestic and international markets to drive sales.

Why Aphria Expects Huge Revenue Growth

Aphria’s expanding domestic business

Aphria reported its fourth-quarter earnings for fiscal 2019 on August 1. During the earnings call, the company said that its second campus at Aphria Diamond was ready to operate but waiting for Health Canada’s license approval. The 100-acre campus offers 1.3 million square feet of premier greenhouse production. The new production facility should increase the company’s annual domestic production capacity to 255,000 kilos.

Management expects vapes and concentrates to form 30% of the recreational market in Canada by 2021. Through its strategic partnership with the PAX Era brand, the company’s developing a portfolio of vapes and concentrate products to capture the market. Aphria has also established an “Extraction Centre of Excellence” at its Aphria Diamond campus, which aims to facilitate product innovation. We expect these growth initiatives to drive domestic sales in fiscal 2020.

International business

Aphria expects to receive EU GMP certification for its bulk and finished product in the first half of fiscal 2020. The certification would allow the company to export to European and South American markets. Currently, APHA products are available in more than ten countries. The company’s also looking to expand its premium brands to other markets.

In Germany, Aphria has five licenses to grow all three strains of medical cannabis that German authorities approve. It also launched a CBD-based nutraceutical product in Germany. Plus, it hopes to increase CBD product sales through its subsidiary CC Pharma.

Since the LATAM Holdings acquisition last year, Aphria has generated revenues of 4.1 million Canadian dollars in Latin America. It’s also expanding its processing facilities to serve Latin America’s population of around 650 million.

Aphria’s operating profits improved

Management expects adjusted EBITDA in the range of 88 million–95 million Canadian dollars for fiscal 2020. In comparison, the company reported an operating loss of 27.7 million in fiscal 2019. We expect higher average selling prices for recreational cannabis and a lower cost of sales to drive APHA’s operating profits.

APHA stock performance

Aphria outperformed analysts’ expectations in the fourth quarter of fiscal 2019. Impressive fourth-quarter performance has driven the stock price. And, year-to-date, APHA has returned 20.4% as of August 7. Meanwhile, peers Innovative Industrial Properties, Aurora Cannabis, and Cronos Group have returned 133.4%, 29.9%, and 32.7%, respectively.

For valuations and analysts’ recommendations on APHA, see Aphria: Target Price and Valuation Update.

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