What triggered the Sunniva sell-off? (CSE: SNN)

QUESTION: “What in the f!#@>*&%!><$*&#+k is happening with Sunniva?”

From: Many readers from around the world.

ANSWER: Triggering a sell-off in Sunniva Inc. (CSE: SNN) (USOTC: SNNVF) was a research note from Canaccord analyst Matt Bottomley in which he lowered his target price from $6.00 per share to $4.50 per share and his rating from SPECULATIVE BUY to HOLD. His reasons were as follows:

1. Total reported revenue was in line with expectations but included $10 million in initial bulk sales which are not expected to be repeated next quarter.

2. Revenue from Natural Health Services were down 18% and NHS was named in a class action lawsuit.

3. The EBITDA loss was C $.8 million, better than the estimated C $3.6 million forecast.

4. Encouraged management reiterated the completion of the Phase One buildout at Cathedral City.

5. Also cited in a negative light were:

• Management changes impacting Leith Pedersen (President) and Dave Negus (Chief Financial Officer).

• Decision to stop development at Okanagan Falls implying a longer ramp to maturity of Canadian operations

• Relatively low cash position of $1.6 million.

Bottomley is a professional analyst but he works for Canaccord that has a strong retail presence, that is, dealing with individual investors is an important part of their business. Back in my analyst days when I would make the sincere statement, “I think the stock is a hold,” some brokers would say to me, “Ted. There are no hold tickets.” What that meant was a “BUY” recommendation triggered an action to buy something and a “SELL” recommendation triggered an action to sell something but a HOLD recommendation triggered no action at all and, in my day, it didn’t generate any commissions. Thus for some brokers a stock was either a buy or a sell. If it was no longer a buy it was automatically a sell. Bottomley’s advice to “hold” might have triggered some Canaccord analysts to sell.

But I do have some differences with Bottomley’s case:

1. As Dr. Anthony Holler explained in his recent interview with me, the College of Physicians and Surgeons recently changed its policy so that operators such as NHS had to see patients every three months. This required NHS to call its patients to schedule appointments. This changed the business model for NHS somewhat and resulted in a period of time when the patients being seen were existing patients in for a second visit. Holler reported a better balance of patient flow between new and existing people but in any case, I believe NHS is one of two Canadian assets that will be sold, perhaps soon.

2. I’m not ultimately clear on Bottomley’s statement of a “…longer ramp to maturity of its CA ops….” Unless maturity means sale of Canadian operations, I am sticking to the idea that the Canadian assets will be gone sooner rather than later and funds deployed into California operations is ultimately good for shareholders.

In any case, prior to this with SNN trading at $4.15 per and a target of $6.00 meant a potential upside of +44.6%. Now with the stock at $3.20 and Bottomley’s new target of $4.50 per share implies a potential upside of 40.6%. So maybe it’s onward and upward admittedly from a much lower level.

In the “Ted Ohashi Lexicon of Investment Terms” there is an expression “GODAMSTCK” that is used in context with Sunniva as, “When is this God Dam Stck” going to turn around? Soon faithful readers. Soon.