Portfolio manager assesses company’s prospects with speculation of takeout rife
Tilray is an attractive potential partner for a beverage company but interested investors may be too late to capture the upside.
Portfolio manager Doug Waterson, Faircourt Asset Management, is an admirer of the firm’s structure and focus on the international market and said its IPO on the NASDAQ has created a strong footprint in terms of visibility and liquidity.
The prospect of the British company being the subject of a similar deal to the Canopy-Constellation one drove its valuation to $4.9 billion this week, with Diageo reportedly interested. At 3.30pm yesterday, Tilray’s stock was trading at $57.
Waterson manages the Ninepoint UIT Alternative Health Fund, which holds Tilray having bought it during its IPO, sold it and then bought it back again for about $25.
He said: “The issue now is that they have been bid up rather significantly; they are not cheap by any stretch of the imagination. The beverage companies aren’t crazy and they won’t do deals at any price, so there is a balancing off.
“They’d make a good partner but it needs to be balanced. There will be some push and pull, and a partnership or investment can take a lot of different ways – they can be structured and there’s a lot of ways to work together.”
Waterson said investors looking to get involved in the space now as big alcohol companies circle may be better off scouting around for firms that offer more potential value.
“Tilray has had enough of a run – it’s going to impact their desirability. You are buying it for further upside so you would like a nice 20-30% takeover premium. So, 20-30% on Tilray at $60, we’re closing in on 80 bucks a share – that’s a pretty tall order.
“I think there are other names that could fit the bill that would provide exposure at significantly lower prices than that.”
Waterson warned that those expecting a flurry of takeouts in the same manner of Canopy-Constellation may be disappointed, although he expects to see more transactions – via JVs and IPs, for example - in the space with alcohol sales dropping.
“I don’t know if they are necessarily going to trample in on mass and suck them all up but I do believe we will see more transactions in the space. It’s still good for the sector and it’s an exciting time but people thinking about pure takeouts may be disappointed if some of these other things come to fruition.”
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