Fiscal fourth quarter results from The Supreme Cannabis Company (The Supreme Cannabis Company Stock Quote, Chart TSXV:FIRE) show a company demonstrating solid cost control and annualized revenues either above or comparable to higher valued LPs in the cannabis space, says Robert Fagan, analyst for GMP Securities, who has raised his target price from $3.00 to $3.50 to go along with his “Buy” recommendation.

On Monday, Supreme Cannabis announced its fiscal year and Q4 results for the period ended June 30, 2018, posting revenue for the quarter of $3.5 million, up 71 per cent year-over-year, and an Adjusted EBITDA loss of $1.8 million.

“Over the past twelve months, Supreme Cannabis executed on its plan to deliver strong financial growth, build proprietary value around regulated cultivation at scale, establish coast to coast distribution in recreational markets and make inroads into the international medical cannabis market with a strategic investment,” said Navdeep Dhaliwal, CEO of Supreme Cannabis.

Those numbers were higher than Fagan’s revenue and EBITDA forecasts of $3.2 million and negative $3.6 million, respectively, driven by better than expected control over selling, general and administrative expenses (SG&A), along with higher gross margins and higher selling prices, says Fagan.

“While Q4 was not a critically important quarter, we view the results positively as they highlight good execution as FIRE rapidly scaled up its operations. Revenue visibility has improved with 11 supply agreements secured for the first year of REC sales, which combined with FIRE accelerating its capacity expansion to 13,330 kg before year end bodes well for the outlook in our view,” said Fagan in a client update on Tuesday.

“Valuation also remains relatively attractive at 6.5x CY20 EBITDA, a ~60 per cent discount to peers. Our target increases as we lower our discount rate slightly to reflect FIRE’s recent positive developments.”

Fagan says the Supreme Cannabis’ capital efficiency advantage will mean comparatively lower levels of sales and profitability to produce strong ROIC going forward and claims the 60 per cent discount to peers is attractive given the company’s relatively large number of awarded supply contracts, successful premium pricing strategy and potential for relatively strong value creation. The analyst says FIRE’s potentially $100 million in excess cash will also generate incremental EBITDA in the neighbourhood of $60 to $80 million, which is not included in his forecasts (which have received minor adjustments).

Fagan’s new target of $3.50 represents a projected return of 55.6 per cent at the time of

publication.