Proactive Investors - Organigram’s latest quarterly results demonstrated the strength of its international sales growth while its performance in the recreational (REC) segment was weak, analysts at Stifel GMP highlighted.
In a note to clients, the analysts observed that the Moncton, New Brunswick-based cannabis producer's fiscal second quarter 2023 results were mixed, missing on revenues but with significantly higher than expected gross margins.
Revenue came in at $39.5 million against the consensus expectation of $43.5 million. Stifel’s analysts wrote that the main driver behind the miss was the decrease in REC sales which came in at $27.4 million, a 24% decline quarter-over-quarter.
This was offset by strong, high-margin international sales growth of 83% quarter-over-quarter to $10.8 million, they noted.
“International sales grew substantially, which was likely a main driver behind the impressive gross margin improvement and company outlook, pointing to a potentially sustainable high-margin revenue source in a typically volatile wholesale channel,” they wrote.
Looking ahead, the analysts noted that Organigram had provided limited details on its 2023 financial year revenue outlook.
However, the analysts pointed out that the company had reiterated its goal of achieving positive free cash flow guidance in the first quarter of fiscal 2024, which falls at the end of the 2023 calendar year, while increasing its fiscal 2023 capital expenditure budget from $29 million to $32 million.
“Overall, we would like to have greater visibility on the performance of new REC value products introduced to better compete in the value segment amid its recent doubling of Moncton's production capacity while also seeing optimism on its accretive international sales outlook,” they wrote.
As such, the analysts reiterated their ‘Buy’ rating on the stock with a C$1.50 price target. Organigram’s shares fell following the release of its results, down 12.9% at C$0.80 shortly after noon on Tuesday.
“We note OGI shares have outperformed peers recently (up 9.5% over one week versus 0.1%), and as a result, we believe investors may take a more cautious stance [on Tuesday],” the analysts wrote.