A new weekly look at some small-cap stocks making news - or about to. Please let us know in the comments how you like this new feature and your suggestions on what you’d like to see in the future.
Canada’s S&P/TSX SmallCap Index is up 27 per cent over the past 12 months and remains a few points shy of its record high of 852.21 reached in April 2022. The Russell 2000 in the U.S. is up about 27 per cent over the past year. It reached its all-time high of 2,449.86 on Nov. 27.
Small-cap spotlight
Here’s one small cap in Canada that investors may want to put on their radar screen.
When cannabis producer Organigram Holdings Inc. (OGI-T, OGI-Q) reports its latest earnings next week, investors will be looking for evidence of operating improvements and information on its efforts to gain market share, especially after its recent acquisition of vape and pre-roll company Motif Labs.
On Dec. 6, the company announced the acquisition of Motif Labs, a Canadian leader in the vape and infused pre-roll categories, for $90-million (including $50-million in cash and $40-million in stock). Motif Labs is a private Canadian licensed producer with a leading market share in vapes and infused pre-roll product categories.
Organigram said the deal makes it Canada’s largest recreational cannabis company by market share, which analysts estimate to be about 12.4 per cent of the Canadian adult-use market.
The acquisition addresses the company’s underperformance in the vape category and strengthens its infused pre-roll segment, Canaccord Genuity analysts Yewon Kang and Matt Bottomley said in a Dec. 8 note. They have a “speculative buy” on the stock and lowered their price target to $3.15 from $3.60 due to the 12-per-cent increase in diluted share count from the acquisition.
They also updated their outlook for Organigram, citing the $10-million in cost savings expected to come with the integration of Motif Labs. “Overall, the acquisition shows OGI’s continued expansion in the Canadian recreational cannabis space by enhancing its overall product portfolio with market-leading brands,” they wrote.
In the company’s third-quarter analyst call in August, Organigram CEO Beena Goldenberg said the fourth quarter should see the largest Canadian industry retail sales in history, at $1.5-billion. The CEO said the company “should benefit disproportionately from this growth over time.”
In the company’s third-quarter analyst call in August, Organigram CEO Beena Goldenberg said the fourth quarter should see the largest Canadian industry retail sales in history, at $1.5-billion. The CEO said the company “should benefit disproportionately from this growth over time.”
RBC Dominion Securities Inc. analysts Douglas Miehm and Sahil Dhingra have a “sector perform, speculative risk” rating on the stock (similar to hold) and a $2.75 price target.
“We believe continued growth of the acquired portfolio along with realization of the expected cost synergies would be needed for a successful acquisition given that several prior acquisitions in the sector have seen peer companies struggling to maintain their [pro-forma] share,” the analysts wrote in a Dec. 8 note. “We see limited risk of that happening in this situation given the highly complementary nature of the acquired portfolio.”
Organigram shares are up 24 per cent over the past year, but trading well below their 52-week high of $3.95 on the S&P/TSX Composite Index in March when cannabis stocks rallied on the news about progress with the U.S. Secure and Fair Enforcement Banking Act (SAFER), which would enable financial institutions in the United States to work with cannabis-related businesses without fear of federal penalties.
The stock is up 30 per cent over the past year on the TSX. The average target price for Organigram stock is $3.63, according to Refinitiv Eikon data.
Organigram is expected to report its fourth-quarter results on Dec. 18. Analysts are expecting revenue to come in at $43-million and for the company to report a loss of 4 cents per share, according to according to Refinitiv Eikon data.
In the fourth quarter last year, revenue was $46-million and the company reported a net loss of 11 cents per share. It said the loss was due primarily to impairments on plant, property and equipment and goodwill alongside the increased cost of sales and operating expenses.
Upcoming: Here are a few other companies expected to report earnings in the coming days: Quipt Home Medical Corp. (Dec. 16), Reitmans (Canada) Ltd. (Dec. 19).
Small-cap summary
Other small caps making news this week:
VersaBank (VBNK-T, VBNK-Q) reported fourth-quarter earnings below expectations. The company was hit by about $5.6-million in one-time costs associated with closing a U.S. bank acquisition and launch of its receivable purchase program in the U.S.
Revenue came in at $27.3-million, below consensus estimates of $29.4-million and down from $29.2-milllion a year ago. Net income of $5.5-million or 20 cents per share dropped from $12.5-million and 47 cents per share a year ago. The expectation was for earnings of 41 cents per share.
In a Dec. 10 note, Acumen Capital analyst Trevor Reynolds said that, excluding the one-time costs, the results were generally as expected and the company’s outlook remains intact. He maintained his “buy” recommendation and increased his target price to $27.50 from $20.
VersaBank shares are down 11 per cent this week, up to Thursday’s close, but have more than doubled over the past year.
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Roots Corp. (ROOT-T) reported a third-quarter profit of $2.4-million or 6 cents per share for the period ended Nov. 2, up from a profit of $519,000 or a penny per share in the same quarter last year. Sales for the quarter came in at $66.9-million, up from $63.5-million a year ago. The stock is up about 15 per cent in the past week and down 8 per cent in the past year. It has traded between a high of $2.74 and a low of $1.80 over the past 52 weeks.
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Evertz Technologies Ltd. (ET-T) reported fourth-quarter earnings on Dec. 11 that were above analysts’ expectations. The company also increased its dividend.
The company said revenues were $125.3-million for the quarter ended Oct. 31 compared to $130.7-million for the same period last year. Net earnings were $15.9-million or 21 cents per share compared to $22.3-million or 29 cents last year. Analysts were expecting revenue of $120.4-million and earnings to come in at 17 cents per share.
Evertz declared a regular quarterly dividend of 20 per share, up from 19.5 cents last quarter, which translates into a yield of 6.5 per cent.
“Evertz has typically focused excess FCF [free cash flow] on tuck-ins or special dividends in the past, although we have recently seen increases to the quarterly dividend,” stated Canaccord Genuity analyst Robert Young in a Dec. 11 note. He said Evertz issued a special dividend in 2020 and 2022 and wrote that “In the absence of M&A, [the] Evertz BoD [board or directors] may choose to issue another special dividend, in our view.”
Mr. Young has a “buy” recommendation on the stock and increased his price target to $15.50 from $15.25 after the earnings report. Its price today is about $12.46. The stock is up about 1 per cent this week and down about 12 per cent over the past year.
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Boston Pizza Royalties Income Fund (BFP-UN-T) announced a 1.8-per-cent increase in its distribution and a special distribution. On an annualized basis, the new monthly distribution rate equates to $1.380 per unit compared to $1.356 per unit for the previous monthly distribution rate. The special one-time cash distribution to unitholders is $0.075 per unit. Both will be paid on Dec. 31 to unitholders of record at the close of business on Dec. 21.
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Ceres Global Ag Corp. (CRP-T) announced on Dec. 10 that Carlos Paz has resigned as president, CEO and a director of the company as of Dec. 31 “to pursue an alternative opportunity.” Tom Coyle, an adviser to the board and former director, has been named interim president and CEO, effective Jan. 1, 2025.
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Imperial Metals Corp. (III-T) announced on Dec. 9 that it and its subsidiary Mount Polley Mining Corp., along with engineering firm Wood Canada Ltd., have been charged with alleged violations of the federal Fisheries Act, arising from the failure of the Tailings Storage Facility at the Mount Polley Mine more than 10 years ago. The company said the charges are outlined in an indictment filed with the Supreme Court of B.C. on Dec. 6, which it received on Monday. The company said it doesn’t intend to make further public statements on the action because it’s before the courts. Here’s the Globe’s full story.