Seeing it “meaningfully” outperforming the industry as its market share gains continue, Echelon Capital analyst Andrew Semple added High Tide Inc. (HITI-X +0.53%increase) to the firm’s “Top Picks” portfolio for the fourth quarter, touting its “plentiful” growth opportunities and “bolstered” balance sheet.
“The Company’s discount club model is demonstrating incredible growth in the competitive retail vertical with High Tide rapidly gobbling up market share,” he said. “Very few competitors have the balance sheet strength to respond to High Tide’s discount club retail strategy, allowing the Company to remain aggressive with its growth plans. The Company is seeing strong organic growth (e.g., SSS-growth of 46 per cent year-over-year in FQ322), while also growing through organic new store openings and store acquisitions (e.g., the acquisition of two Jimmy’s Cannabis Stores BC announced just last week, see p. 2). High Tide is on track to reach its 150-store target by year-end and plans to reach 200 operating stores by YE 2023. In addition to cannabis retail, the Company’s international e-commerce businesses provide high-margin and asset-light growth opportunities as hemp-derived CBD and cannabis accessory demand grows over time.”
Mr. Semple thinks the recent deceleration of Canadian cannabis retail store openings will “ease competitive pressures in the coming quarters and will allow for a gradual expansion of gross margins at the retail level.”
“Other initiatives including the rollout of Fastendr technology and the paid ‘Cabana Elite’ loyalty program will further bolster the Company’s profitability,” he added.
“Meanwhile, High Tide has much improved its balance sheet and financial flexibility after adding $30-million of new capital to its balance sheet over the past three months, including $11.5-million of equity and $19.0-million of debt. We believe these proceeds will be deployed to accelerate growth in the coming quarters by advancing new store openings and new M&A timelines. We view these financings as also significantly reducing HITI’s risk profile, as the Company’s capital requirements were one of the more prominent risks in the past.”
The analyst reiterated his “speculative buy” rating and Street-high $12 target for High Tide shares. The average is $7.56.
“With demonstrated historical growth and clear future drivers, significant market share gains, and a derisked balance sheet, we believe High Tide’s shares are ripe for rerating higher,” he said.