Why Is Raymond James Bullish on OrganiGram?


Jun. 1 2020, Published 11:20 a.m. ET

Rahul Sarugaser of Raymond James is upbeat on OrganiGram Holdings (NASDAQ:OGI). The company amended its credit facility with the Bank of Montreal. As reported Cantech Letter on May 31, Sarugaser reiterated its “buy” rating and recommended buying the stock on dips.

In May 2019, OrganiGram agreed to a loan facility of 115 million Canadian dollars and 25 million dollars of revolving credit facility with a syndicate of three lenders led by Bank of Montreal. Among the loan amounts, the company availed 85 million Canadian dollars. However, in April, the company announced that it wasn’t in compliance with one of the financial covenants. The issue raised doubts about whether OrganiGram can access the remaining 30 million Canadian dollars on loan.

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On May 29, OrganiGram announced amendments to the earlier agreements. The amendments allowed the company to avail the remaining 55 million Canadian dollars of credit on top of the 40 million Canadian dollars of cash it has on hand. However, the amended agreement requires OrganiGram to maintain 30 million Canadian dollars of cash all the time. Among the amount, the company has to deposit 8 million Canadian dollars as cash collateral with BMO.

On new amendments, Sarugaser said, “We view continued access to these BMO funds as positive, and the restrictive covenants we believe should motivate OGI toward driving positive EBITDA today and in future quarters.”

Sarugaser’s expectations from OrganiGram

Sarugaser stated that OrganiGram’s earnings for the third quarter of fiscal 2020 would reflect the company’s first full quarter of Cannabis 2.0 sales. He said that the company claimed a substantial market share in the segment. For fiscal 2020, Sarugaser expects the company to report revenue and EBITDA of 109 million Canadian dollars and 3 million Canadian dollars, respectively. Meanwhile, these figures will likely rise to 174 million Canadian dollars and 40 million Canadian dollars in fiscal 2021, respectively.

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Other analysts’ recommendations for OrganiGram

Overall, analysts are bullish on OrganiGram. Among the 15 analysts, 12 recommend a “buy,” while three recommend a “hold.” None of the analysts recommend a “sell.” As of May 29, analysts’ consensus target price was 4.66 Canadian dollars, which represents a return potential of 92.7%.

Stock performance

OrganiGram has lost 24.1% of its stock value YTD (year-to-date). The stock fell due to OrganiGram’s weak second-quarter performance and weakness in the cannabis sector. The company has underperformed the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ), which has fallen by just 13.8% YTD. Meanwhile, Canopy Growth (TSE:WEED), Aurora Cannabis (NYSE:ACB), and Aphria (NYSE:APHA) have all fallen by 11.4%, 42.4%, and 14.3%, respectively. On May 29, Canopy Growth reported a lower-than-expected fourth-quarter performance. To learn more, read Canopy Growth Stock Tanks Over 18% on Weak Q4 Earnings.


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