Categories Analysis, Cannabis

Earnings preview: Asset write-downs likely to hurt Aphria in Q4

Aphria Inc. (NYSE: APHA and TSX: APHA) is set to release its earnings results for the fourth quarter of 2019 on Thursday after the market closes. The results of the cannabis products producer will be hurt by potential asset write-downs and lesser supply contracts as well as higher costs and expenses related to the investments. This will be the third time the company will report earnings after it began trading on November 2, 2018.

Check out Aphria’s Q4 2019 live earnings update: Aphria (APHA) drops ahead of Q4 2019 earnings

Aphria’s stock has turned out to be an underperformer when compared to its closest peers Aurora Cannabis (NYSE: ACB), Canopy Growth (NYSE: CGC), and Cronos Group (NASDAQ: CRON). After the short sellers attack alleging insider trading and overpayment for LATAM purchase, Aphria’s stock now trades at attractive valuation levels. The shares look appealing for value-play looking investors within the cannabis sector.

In the near term, the company is expected to capture a bigger share in the Canadian cannabis market driven by the higher capacity of more than 255,000 kg per year and purpose-built extraction center. The company’s Canadian production facilities are awaiting Health Canada approval for capacity expansion.

Asset write-downs likely to hurt Aphria in Q4
Photo Courtesy: Rex Medlen from Pixabay

Aphria is likely to receive better takeover interests after a weak bid from Green Growth Brands due to its strategic value and asset portfolio in Canada. The company seeks to identify partnership and investment opportunities through its international operations for creating long-term shareholder value where national cannabis legalization framework is developing.

The company expects to continue to focus and invest in the Canadian medical market while concurrently developing cannabis-based products and brands targeting the adult-use market. The company believes cannabis-infused products, such as edibles, beverages, etc., could represent more than 50% of the total cannabis market upon becoming federally legal in Canada.

For the third quarter ended February 28, 2019, the pot producer reported a loss of C$108.21 million or C$0.43 per share compared to a profit of C$12.94 million or C$0.08 per share in the previous year, due to non-cash impairments and additional non-operating losses. Revenue jumped more than seven times driven by an 85% increase in kilogram equivalents of cannabis sold and C$57.6 million of distribution revenue from CC Pharma and ABP.

aphria earnings and revenue trend

For the fourth quarter of 2018, the company had C$12.03 million of revenue with a net loss of C$4.99 million or C$0.06 per share. During the quarter, Aphria sold 1,312.6 kilogram equivalents of cannabis.

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