Now that he regards the hostile bid from Aurora Cannabis as unlikely to happen, Clarus Securities analyst Noel Atkinson is raising his target price on CanniMed Therapeutics (TSX:CMED).
On Wednesday, at an annual and special meeting, shareholders of Newstrike Resources voted overwhelmingly in favour of a proposed $369-million takeover by CanniMed.
Atkinson says this is an important development.
“Aurora Cannabis (TSX: ACB, NR) has stated that its hostile takeover attempt of CanniMed for a maximum of $24/share in Aurora shares is conditional upon the CanniMed/Newstrike deal NOT being completed,” the analyst says. “But given that 66 2/3% of CMED shares must tender to the offer, and that Newstrike shareholders (who own the control position and voted over 99% in favour of their tie-up with CMED) are very unlikely to vote in favour of the Aurora deal, the Aurora bid is most probably untenable in its current form anyway. A revised bid would not only have to incorporate the much larger CMED share count once the Newstrike deal closes, it would also likely have to offer a much higher price (and probably some portion in cash). Aurora’s current tender offer expires on March 9.”
Atkinson said today he is making new assumptions about CanniMed, arguing that life without the prospect of Aurora’s involvement will be prosperous for the LP.
“We are now assuming that Aurora will have to cancel its offer for CanniMed in the wake of a likely CanniMed/Newstrike deal completion, or double down and raise its offer to a more compelling price per share,” he says. “Consequently, we are changing our 12-month target price from the Aurora offer (currently $24/share) to a going concern valuation based on a target multiple of CY2019e EV/Adj. EBITDA. The incremental contribution from the Newstrike assets and our assumption for meaningful utilization of the Saskatoon oil plant more than offsets the additional CanniMed shares being issued in the Newstrike acquisition. In addition, we are implementing a target multiple of 20x FY2019e EV/Adj. EBITDA, which is somewhat below the average consensus multiple of the Canadian LP tracking group but modestly above the median.”
In a research update to clients today, Atkinson maintained his “Buy” rating on CanniMed Therapeutics, but raised his one-year price target on the stock from $24.00 to $37.00, implying a return of 33 per cent over Wednesday’s closing price of $27.82.
Atkinson thinks CanniMed will generate Adjusted EBITDA of $100,000 on revenue of $17.3-million in fiscal 2017. He thinks those numbers will improve to EBITDA of $6.9-million on a topline of $53.8-million the following year.