Friday, February 19, 2021 9:10:48 AM
Last Updated: Feb. 19, 2021 at 6:47 a.m. ET
First Published: Feb. 18, 2021 at 1:51 p.m. ET
By Ciara Linnane
Tilray offers ‘tenuous case for stand-alone value,’ says Stifel
Tilray Inc. shares fell on Thursday, as analysts weighed in on the company’s latest quarterly earnings with most looking ahead to the company’s pending merger with Aphria Inc., saying Tilray looks less compelling on its own.
Tilray TLRY, -14.00% reported a loss of $3 million, or 2 cents a share, after reporting losses of more than $200 million in the same quarter a year ago. Revenue came to $56.6 million, or $50.7 million when accounting for excise taxes, after $46.9 million a year ago, or $42.5 million after excise taxes. Analysts on average predicted a loss of 14 cents a share on sales of $56 million, according to FactSet.
“The stronger revenue performance included strength across the cannabis businesses (+69% y/y), strength we view as encouraging for the prospects of the combined platform likely to be created in the pending merger with Aphria,” said Stifel analysts, led by W. Andrew Carter.
“But Manitoba Harvest’s weaker performance, down 18% y/y, is concerning
with the business underperforming amid a strong food-at-home environment,” they wrote in a note to clients. Manitoba is a hemp foods maker that Tilray acquired in 2019.
Tilray again outlined the merits of its planned merger with Aphria Inc. APHA, -6.70% APHA, -6.68%, which is expected to create the world’s biggest cannabis company measured by sales. Stifel said that deal is likely to succeed, “with Tilray offering a tenuous case for stand-alone value, we view Tilray’s current implied 16% premium as unwarranted,” they wrote. Stifel rates Tilray stock at hold.
Alliance Global Partners analyst Aaron Grey agreed that Tilray is looking expensive on a stand-alone basis and looks forward to the Aphria deal closing, an event expected to take place in the second quarter.
But Tilray is “inflecting to profitability,” said Grey, referring to the company’s positive adjusted EBITDA — earnings before interest, taxes, depreciation and amortization — of $2.2 million, which was ahead of his estimate of $0.1 million. The improvement was mostly driven by annualized savings on sales, general and administrative costs of $58 million since the fourth quarter of 2019.
“We look for the company to drive incremental margin expansion in 2021 as sales ramp and gross margins expand,” Grey wrote in a note. Alliance rates Tilray as neutral with a stock price target of $32, just above its current level of $31.92.
Cantor Fitzgerald is sticking with its neutral rating on Tilray stock and 12-month price target of $30.25, and reiterated its position that Aphria is the better investment for anyone hoping to profit from the merger.
Under the terms of the deal, Aphria shareholders will receive 0.8 of a Tilray share for each Aphria share owned. Aphria shares have fallen since the deal was announced and are now trading at roughly 45% discount to the conversion price, said analyst Pablo Zuanic.
Zuanic is expecting the combined entity to have international sales of more than 2 times the next player, namely Aurora Cannabis Inc. ACB, -7.96% ACB, -7.97%
“We think the probability of new bidders emerging is almost
zero, and, in our interpretation (from the call), TLRY will not be looking to renegotiate the exchange ratio of the merger deal with APHA (the disconnect between the two stocks, relative to the merger exchange ratio notwithstanding). Based on better-than-expected 4Q cannabis trends (sales and EBITDA), we could view the [price target] more positively, but we prefer to leave it unchanged until the 10-K is out and we have seen Hifyre scanner data for all of February. “
Benchmark analyst Mike Hickey downgraded his rating on Tilray stock to hold from buy, based on valuation as it has now exceeded his $12 price target by 163%. The Aphria merger “should enable a step up in profit,” he wrote.
Tilray shares were down 1.2% but remain up 277% in the year to date. The stock has been swept up in a rally triggered by hopes for U.S. cannabis reforms and has also become a target of retail investors who share notes and tips on a Reddit subgroup.
Aphria shares were down 0.7%, but are up 195% year to date.
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