Monday was another good day for investors of Sundial Growers (SNDL); shares added 14% in the session, further increasing the year’s plentiful bounty. So far in 2021, the stock is up by an impressive 222%.
The latest leg up took place after Sundial announced it is forming a partnership with SAF Opportunities LP, a private equity and credit investment firm based on the Canadian West Coast.
The 50/50 joint venture will form SunStream Bancorp, an entity in the hunt for appealing investment opportunities (whether debt, equity or hybrid) in the Canadian and international cannabis markets.
Both sides are expected to bring to the table operational, strategic, and financial ideas, combining Sundial’s industry knowhow and SAF’s financial expertise.
Canaccord analyst Shaan Mir points out that the latest development follows a pattern.
“The company has remained active in seeking out cannabis investment opportunities in tandem with using equity financing to bolster its balance sheet,” the analyst said.
Mir estimates that prior to the announcement, Sundial’s cash balance stood at over C$700 million. From the get-go, Sundial is expected to commit ~C$100 million of capital to the venture’s special opportunities fund.
In January, Sundial made known its intention to acquire a special purpose vehicle that held roughly C$58.9 million of Zenabis Global debt, as well as a royalty feature on Zenabis’ cannabis sales.
Following which, using a combination of debt and equity instruments, in February, the company announced a C$22 million strategic investment in cannabis-enhanced edibles company Indiva.
Although Mir says these investments “offer attractive return opportunities,” they play no part in Sundial’s underlying operational performance.
“Regardless,” Mir added, “With access to >C$100M via SunStream and a >C$600M war chest with no debt on the balance sheet, we believe Sundial can be a notable player in industry consolidation efforts and would look to see capital deployment in international markets (particularly the US) as global regulations continue to move in favour of cannabis reform.”
Mir hopes to glean additional insights when Sundial reports its FQ4/20 financial results today after the bell.
For now, Mir sticks to a Hold rating, backed by a $0.4 price target. Mir evidently thinks SNDL’s share price has soared enough for now, as the anticipated downside from current levels is a painful ~73%. (To watch Mir’s track record, click here)
The Street’s average price target also suggests a sharp drop – ~61%, as it happens – given the figure stands at $0.60. Rating wise, the analysts are bearish, too; Based on 2 Holds and Sells, each, SNDL has a Moderate Sell consensus rating. (See Sundial stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
