Tilray is still a pass, says Haywood

Haywood Capital Markets analyst Neal Gilmer is staying cautious on Canadian cannabis heavyweight Tilray Brands (Tilray Brands Stock Quote, Charts, News, Analysts, Financials TSX:TLRY), maintaining a “Hold” rating on the stock in a Tuesday update to clients. Gilmer said a continuing tough market will likely keep Tilray management focused on improving its balance sheet heading into the new year.

Tilray is a cannabis and consumer packaged goods business with operations in Canada, the US, Europe, Australia and Latin America, with cannabis products as well as hemp-based food and alcoholic beverages. Gilmer’s update comes ahead of quarterly earnings expected next Monday, January 9, where the company will report its fiscal second quarter 2023 results.

Gilmer is estimating revenue at $153.2 million, which would be flat compared to the prior quarter and a one per cent year-over-year decline. Adjusted EBITDA is expected to be $13.5 million, also even compared to the previous quarter and representing a margin of 8.8 per cent. Gilmer expects the macro environment to deliver headwinds to both Tilray’s alcohol and cannabis segments.

“While Hifyre data shows improving market share in the quarter, we have remained conservative with flat cannabis sales given less visibility in Quebec. We are also cautious on craft beer sales trend and the Euro FX rate but partially offset by increased alcohol distribution,” Gilmer wrote.

On its balance sheet, Gilmer noted that after raising $129.6 million last quarter through issuing 32.5 million shares, Tilray finished its fiscal first quarter with a cash balance of $490.6 million against total debt of $640.9 million, including $82.1 million classified as current. 

Further afield, Gilmer has projected full fiscal 2023 revenue of $620.6 million, compared to $628.4 million generated in fiscal 2022, and moving to $683.9 million for 2024. On adjusted EBITDA, the call is for TLRY to move from $48.0 million in fiscal 2022 to $54.8 million in 2023 and to $68.0 million for 2024.

Gilmer said a focus on cash flow generation by management could result in lowered guidance for the fiscal 2023 year, with management at this point calling for free cash flow profitability, something which Gilmer thinks is both attainable and desirable considering the company’s upcoming debt obligations.

“Tilray remains a market share leader in the Canadian landscape,” Gilmer wrote. “We are encouraged by the international opportunities as well as long-term optionality in the US. However, we remain cautious on the overall Canadian landscape which drives a significant amount of its revenue growth opportunity in the near term. We maintain our Hold rating as we await more evidence on accelerated near-term revenue growth opportunities.”

With his “Hold” rating, Gilmer also maintained a 12-month target price of $3.50 per share, which at press time represented a projected one-year return of 30 per cent.