The average target price of NLCP is 16 and suggests 13% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 17.0. This translates into 21% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 15.0. This suggests 7% upside potential. Even the most pessimistic analyst believes there will be stock growth. 

NewLake Capital Partners is a leading provider of real estate capital to state-licensed cannabis operators. Founded in 2019, it is a triple-net lease REIT that acquires industrial and retail properties through sale-leaseback transactions, third-party purchases and build-to-suit projects. Its tenants are some of the leading operators in the U.S. state-licensed cannabis industry and it is a trusted partner for their real estate needs.

NewLake Capital Partners, Inc.

Real Estate

The company tries to pay dividends regularly but only sometimes does so. It has paid dividends in roughly half the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes most of its profit as dividends (payout ratio above 75%, a negative factor). It will not be easy to sustain such a high payout ratio. It may also indicate a company’s lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends every four months. 

NLCP reported revenue of USD 51mn in the last 12 months, up 1% from FY24. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 2% from FY24 to USD 1.22. Market expects EPS to reach USD 1.28 in FY25.

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 17ppts and its growth decelerated by 3ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

The company has reported very strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 81.5% in the last 12 months, up from 78.7% in FY23. 

Historically, NLCP has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 50.3%, down from 52.0% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 5.9% in the last 12 months, an increase from 5.5% in FY23. The market analysts predict that RoA will be 5.2% in FY24, again stronger than its peers. 

In the last 12 months, the return on capital employed (RoCE) grew to 6.1%, above the peers. The consensus estimate for FY24 for RoCE is 5.1%, again ahead of the peers. 

NewLake Capital Partners, Inc. reported a return on equity (RoE) of 6.4% in the last 12 months, up from 5.9% in FY23. The market consensus projects an RoE of 5.6% in FY24, again behind its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.7 in the past several years. This ratio implies a poor shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

NLCP has average trading liquidity. The average private investor can sell his common position in the stock in a single trading day under normal market conditions. Liquidity is usually quite stable and is unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is minimal. We note resilient historical revenue growth, robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to negligible return on capital, excessive margin volatility.

In highly turbulent market conditions, NLCP is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low. 

In normal market circumstances, NLCP is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from low to minimal. We would also like to highlight the minimal intraday volatility of the instrument. 

Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. In particular, the stock is underpriced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

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NewLake Capital Partners, Inc.

$ 13.95

6

NewLake Capital Partners, Inc.

$ 13.95

6

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$ 13.95

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