Executive Summary - Well led company. Large Growth. Possibly a good value, may have better entry points.
I just reviewed the slide deck from the March 19th investor conference.
First, this is a founder led company that has been in green house operations for 30 years. The CEO owns 20 percent of the company. I came across the green houses outside of Marfa Texas in 2006. The fact that anybody could grow anything in that high desert was intriguing to me so I took a really small position mostly so I would get the annual reports and be invited to the stock holders meeting. (I haven’t attended one yet, but if they give out samples it may become more popular.)
In Canada only, Village Farms (VFF) with its partner Pure Sun Farms is on track to deliver 52,000 kilograms of cannabis. Conservatively, pricing the cannabis at 1 dollar a gram, they expect to ship 52 million dollars worth of product in Canada in 2019. However the current price is much higher than 1 dollar a gram and is actually between 5 and 10 dollars a gram. Figuring the companies projected sales for 2019 the entire company (652 million market cap ) is valued at 12.5 times the 2019 Canadian joint venture sales.
However, the Canadian production is on track to be around 255,000 kilograms by 2022. The Pure Sun Farms joint venture (no pun intended) options on the green houses and the financing for this is in place. So the Canadian operations are due to expand by a factor of three or more fairly quickly.
In my opinion, while the company would be a compelling investment anywhere else, a triple would not make this a Saul stock.
(Channeling Gallagher and his SLEDGE-O-MATIC here.
https://www.youtube.com/watch?v=gasAFyonmmI
But wait there’s more!
Village Farms has 5.7 million square feet of green houses in West Texas. This is high desert and they have been making a profit growing tomatoes and bell peppers in these facilities. As Texas has just passed the laws making the growing and selling of Cannabinoids legal, no one knows what the wholesale prices will be or what the gross margins will be nor what the TAM will be. However if we make a guess that the wholesale price will be about the same, we can guess that these recent development will put another 400 million are so into the Village Farms sales from its green house into the income statement by 2025 or sooner.
What is known is at Village Farms has a Joint Venture with the Jennings Group to start cultivation of up to 1000 acres of open growth in 2019 and should have extraction operations in place by the end of 2019. Again we do not know the value that this JV will add.
Considering that since 2017 this company has had to take vegetable production off line and convert to cannabis production the debt and net loss numbers look bad. I had valued this company at about 40 dollars a share based on the 255,000 kilograms of production and with a wholesale price of about 1000 dollars a kilogram of THC cannabis from the Canadian facilities only. As I recall, I had looked up the margins and estimated a net P/E of 10 dollars a share. (Without dilution)
However, I did not expect the sudden move into the United States cannabinoid production. At the time, in early 2018, I expected the market to start valuing Village Farms on the profits it was making, meaning seeing my price target as early as 2020 or 2022 at the latest.
Now I do not know.
(Channeling Gallagher and his SLEDGE-O-MATIC here.
https://www.youtube.com/watch?v=gasAFyonmmI
But wait there’s more!
Village Farms has 5.7 million square feet of green houses in West Texas. This is high desert and they have been making a profit growing tomatoes and bell peppers in these facilities. As Texas has just passed the laws making the growing and selling of Cannabinoids legal, no one knows what the wholesale prices will be or what the gross margins will be nor what the TAM will be. However if we make a guess that the wholesale price will be about the same, we can guess that these recent development will put another 400 million are so into the Village Farms sales from its green house into the income statement by 2025 or sooner.
What is known is at Village Farms has a Joint Venture with the Jennings Group to start cultivation of up to 1000 acres of open growth in 2019 and should have extraction operations in place by the end of 2019. Again we do not know the value that this JV will add.
Considering that since 2017 this company has had to take vegetable production off line and convert to cannabis production the debt and net loss numbers look bad. I had valued this company at about 40 dollars a share based on the 255,000 kilograms of production and with a wholesale price of about 1000 dollars a kilogram of THC cannabis from the Canadian facilities only. As I recall, I had looked up the margins and estimated a net P/E of 10 dollars a share. (Without dilution)
However, I did not expect the sudden move into the United States cannabinoid production. At the time, in early 2018, I expected the market to start valuing Village Farms on the profits it was making, meaning seeing my price target as early as 2020 or 2022 at the latest.
Now I do not know. I expect a lot of Volatility around earnings, and I cannot yet give a terminal value guesstimate. I will say that 12 times sales seem cheap compared to SAAS stocks, but compared to AT&T’s price to sales of 1 it seem dramatically over valued. If I were going to add, I would buy a little now and then watch for the quarterly earnings statements because the AI seems to key in on the growing losses and debts. This is like knowing when the blue light special is going to be.
Finally, the company has executed well on the conversions in Canada. If they can do as well in the United States I believe that this will be profitable investment even from these levels.
Cheers
Qazulight