The Fisker and Spartan Merger Is Still Undervalued

On July 13, Spartan Energy Acquisition Co. (NYSE:SPAQ) agreed to a reverse merger with Fisker, another electric vehicle company. SPAQ stock is still worth much more even though it is already up 19% since July 8. That was well before the reverse merger announcement or before information leaked out beforehand.

a charging station for an electric vehicle
Source: Shutterstock

The reason why SPAQ stock could rise is investors seem to love every new EV stock that goes public with these SPAC (special acquisition acquisition company) structures.  Nikola (NASDAQ:NKLA) stock was so successful since it went public on June 3 through another similar SPAC reverse merger.

For example, investors were impressed when Nikola announced on March 3 that it was going public through SPAC reverse marger. One month after the announcement, on April 3, the stock that Nikola was going to merge with closed at $10.80. Today NKLA stock it is at $41.35.

That 283% gain inspired EV investors hoping for another triple like NKLA stock after its merger announcement.

Fisker’s Value Proposition

Spartan Energy is heavily backed by a major publicly held private equity firm, Apollo Global Management (NYSE:APO). Los Angeles based Fisker will be able to raise $1 billion, including existing cash in Spartan Energy as well as a PIPE (private investment in a public company) equity investment.

Fisker will make an electric SUV in 2022. According to Barron’sFisker expects to make 225,000 electric SUVs a year by 2025. Including the $1 billion in capital raise, the deal will be at an enterprise value of $2.9 billion.

Moreover, on page 7 of the company’s slide presentation, the stock is going to be valued at 0.57 times estimate 2023 revenue of $3.3 billion. It is also values SPAQ/Fisker at 4.3 times adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $441 million.

However, those assumptions were assuming a price of $10 for the stock. At $12.96 on Aug. 31, the stock is up 29.6%. Therefore, the revised valuation is more complicated.

The Fisker Pro Forma Valuation

Here is how that calculation works. Based on the company’s recent proxy documents, there are 96.76 million Class A and B shares (including 27.76 million warrants with exercise prices at $11.50). With the reverse merger, 46.879 million Class A shares will go to Fisker shareholders.

In addition, the founders, Henrik Fisker and Dr. Geeta Gupta will receive 128.56 million super voting (10 vote per share) Class B shares. All told, there will then be 272.2 million shares and warrants, at least not including any Fisker options or warrants, that are outstanding or in-the-money.

Therefore, if you multiply 272.2 million by today’s price, the stock has a pro-forma market capitalization of $3.52 billion. However, it will also have $1 billion in cash. So the enterprise value will be $2.5 billion.

Therefore, at today’s price, the valuation is as follows: 76% of $3.3 in 2023 estimated revenue, and 5.7 times expected adjusted EBITDA of $441 million.

How SPAQ Stock and Fisker Should Be Valued

These are very low valuation numbers compared to pure play EV stocks like Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), and Nikola. Tesla trades at 10 times forward revenue, Nio trades at 5 times forward revenue, and NKLA stock trades for 6 times estimated pro forma sales.

So, to be conservative, and since Fisker has no revenue yet, let’s assume SPAQ stock trades at 3 times 2023 revenue. That means it should have an $9.9 enterprise value.

Moreover, if you add back the $1 billion in cash, the market cap will be $10.9 billion. That represents a potential gain of 3.1 times today’s pro forma market value of $3.52 billion.

That means that SPAQ stock (Fisker’s symbol is not available yet) should be worth 3 times today’s price. That means it is worth $38.88 per share.

Assuming the deal closes, and $1 billion in Fisker’s coffers and assuming 2023 revenue hits $3.3 billion (or analysts see a path to this), SPAQ stock could rise over 200% to $38.88. That is a pretty good ROI for most investors.

On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Mark Hake runs the Total Yield Value Guide which you can review here.

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