AFC Gamma, Inc.

AFCG Details

AFC Gamma, Inc. (NASDAQ: AFCG) is a commercial real estate (CRE) financing firm that provides origination, servicing, and underwriting of senior secured and other forms of loans to cannabis industry operators in states where medical/adult-use cannabis is allowed. The company's loans are secured by the loan parties' real estate, equipment, licenses, and other assets, either directly or indirectly. AFCG was listed on the NASDAQ on March 19, 2021, at an issue price of USD 19.00 per share.

Pricing of Common Stock Offering: On June 23, 2021, the company announced the pricing of an underwritten public offering of 2.75 million common stocks at an offer price of USD 20.50 per share. AFCG has also granted the underwriters a 30-day window to purchase an additional 412,500 common shares. Before adjusting for discounts and other expenditures, the loan provider expects the gross proceeds from this transaction to be roughly USD 56.40 million, with net proceeds to be used for funding loans, working capital, and other company developments.

AFCG Portfolio Diversification and Market Expansion (Source: Q1FY21 Earnings Presentation, May 2021)

Q1FY21 Results: The company reported an interest income of USD 4.69 million in Q1FY21 (ended March 31, 2021). Net income for Q1FY21 was USD 1.40 million. Total expenses for Q1FY21 were USD 3.07 million, including a one-time non-cash stock compensation expense of USD 1.60 million. Total loan commitments as of March 31, 2021, amounted to USD 130.68 million across its 8 portfolio companies, of which USD 97.21 million were funded.

Key Risks: The company was founded on July 6, 2020, and it has only a few years of experience. As a result, it is exposed to the risks and uncertainties that come with starting a new business, such as the possibility that it will not be able to operate successfully or profitably. Furthermore, AFCG's loan portfolio is focused on particular property types or businesses, such as cannabis, that are more likely to default and are secured by assets in a small number of geographic locations. As a result, economic and business downturns in those locations or types of assets may result in loan defaults in a short period, negatively impacting the company's operations, financial position, and operating results.

Outlook: In Q2FY21, the firm plans to pay out between 75% and 90% of its distributable earnings in dividends.

AFCG Daily Technical Chart

Stock Recommendation: AFCG’s share price declined by 11.50% in the past one month. The stock is currently trading below its 50 DMA level, and its RSI Index is 43.96. Considering the attractive valuation of the newly listed company, strong financial performance, geographical diversification, rapidly expanding markets, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of USD 21.46, up by 3.02% as of July 02, 2021. The target price of USD 27.52 represents a Price/Earnings multiple of 14.88x on FY21E earnings per share of USD 1.85. On the technical chart, the next support level is USD 19.75.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.