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Raymond James: Village Farms’ Revenue Miss Is An “Artifact of Consolidation”

Yesterday, Village Farms (TSX: VFF) (NASDAQ: VFF) reported fourth quarter and year-end earnings. The company posted revenues of US$47.4 million for the quarter and a net income of US$7 million. For the full fiscal year, revenues amounted to $170.1 million, while the firm posted a net income of $11.6 million for the year. The company also announced that their subsidiary, Pure Sunfarms was the top-selling brand in both kilograms sold and dollars sold for both the quarter and year-end in the Ontario Cannabis Store.

Village Farms currently has six analysts covering the company with a weighted 12-month price target of C$24.72. This is down from the average before the results, which was C$26.06. One analyst has a strong buy rating and the other five have buy ratings. The street high comes from Beacon Securities with a C$35 price target, and the lowest target comes from Stifel-GMP with a C$17.50 price target.

Onto the streets largest bull, Raymond James. Their analyst Rahul Sarugaser, whom has a strong buy rating and C$26 price target on the name, headlines “4Q20: Wider Rev. “Miss” Artifact of Consolidation | +Net Income Beat | 9th Consec. +EBITDA Q.”

Below is an expert from our pre-earnings coverage, where Rahul gives his fourth-quarter estimate. “Sarugaser forecasts that Village will beat the consensus estimates by 6% for a total of U$55.4 million in revenues for the fourth quarter. They are saying that their channel checks report that Pure SunFarms did U$20.9 million in the fourth quarter.”

As you can see, Village came in quite a bit below their estimate, Rahul believes this large miss is due to the timing and consolidation of their Pure SunFarms acquisition. He writes, “the street overestimating how much of PSF’s revenue VFF would consolidate in 4Q20 (~83%E vs. ~70%A).” Most notably, Pure SunFarm’s revenue grew 28% sequentially and 248% year over year. They boast a respectable 13% market share in Ontario. At the same time, they are making a dent in the derivative market with a top-five position in Ontario’s vape sales at 5%.

He says that Village should slowly attract the same multiples that the other large Canadian LP’s get. He writes, “we believe VFF’s EV/Revenue asymmetry with peers will become explicit, driving a material correction to the upside.”


Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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