Valens Announces $27 Million Q4 Guidance, Share Buybacks

Valens GroWorks (TSXV: VGW) this morning announced guidance for the recently completed fourth quarter, providing a revenue estimate of between $27 and $30 million for the three month period. The firm also announced its intent to initiate a normal course issuer bid for its securities.

Guidance for the quarter represents a substantial improvement on a quarter over quarter basis. In the third quarter of fiscal 2019, Valens reported revenues of $16.4 million, which was a marked improvement from the previous quarter. Today’s guidance in effect translates to a near doubling of quarterly revenues, in a time where major sector players such as Hexo Corp are showing flat or decreasing revenues during relatively the same time period.

What will be key however is the impact the increasing revenues will have on both gross margin as well as the profitability of the firm. Last quarter Valens reported a net income of $5.8 million, however the fiscal year is still negative at $11.0 million. In this regard, the positive news is that relatively the same amount of biomass was extracted in the fourth quarter compared to the third quarter, suggesting increased gross margins for the period. The increase in revenue is largely a function of white label agreements.

Secondly, Valens GroWorks also announced its intent to commence a normal course issuer bid for its common shares, also known as a share buyback. The firm intends to purchase up to 5%, or 6,275,204 common shares of its equity as a result. The buyback program is expected to occur over a period of one year.

The intent to conduct share buybacks before achieving profitability is a curious move, given current sector sentiment. This is compounded by the relative strength of Valens when compared to the cannabis sector as a whole, who has stayed relatively flat over the course of the year – a positive position when compared to the dominant sector index HMMJ.

Valens GroWorks last traded at $2.90 on the TSX Venture.

Information for this briefing was found via Sedar and Valens GroWorks. 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.