Newborn Acquisition Corp (NASDAQ:NBAC) is a SPAC (special purpose acquisition company) that will merge with EV charger Nuvve Corp. Once that happens and the symbol changes to NVVE, expect to see NBAC stock (actually NVVE stock) move significantly higher.
I went over the basic reasons for this in my last article on Dec. 16. showing what NBAC stock is worth. I concluded that after the merger the combined company will be worth $31 per share. That was more than 100% higher than the price at the time when NBAC stock was at $14.37.
However, since then the stock has risen to $19.10 on Jan. 26. I now believe that NVVE/NBAC stock is worth $34.50, or 81% higher than the recent price.
In effect, NBAC stock has risen 33% since my last article. But it is still worth considerably more. Here is how I came up with the $34.50 price target.
The Sales Multiple
One of the main reasons for this is because other charging company stocks that act as comps are still highly valued. For example, Blink (NASDAQ:BLNK) and Switchback Energy (NYSE:SBE), which plans on merging with EV charging company ChargePoint, have much higher valuations.
On page 24 of the Newborn Acquisition Corp slide presentation, Nuvve lays out the economics of the merger transaction. Once the merger closes, there will be 20.2 million shares outstanding.
Therefore, on a pro forma merger basis, the market cap for NBAC stock is now $387.8 million (i.e., $19.10 share price as of Jan. 26 times 20.2 million shares). Moreover, since the merger raises $70 million, the pro forma enterprise value will be $318 million (i.e., $388 million minus $70 million).
Nuvve projects on page 26 of the slide presentation it will make $32.3 million in revenue in 2021. By 2022, Nuvve forecasts revenue almost three times that at $94.3 million.
Therefore, its enterprise value-to-sales multiple is only 9.9 times (i.e., $318 million divided by $32.3 million). But this is way below the same metric of its comps.
Comparing the Valuation
Blink has an enterprise value-to-sales ratio of 434 times, according to the Yahoo Finance statistics tab.
Moreover, for 2021, Blink has a $1.95 billion enterprise value and it expects to make 2021 revenue of $11 million, according to Yahoo’s analysis tab. Therefore, its enterprise value-to-sales multiple for 2021 is 177 times. That is more than 17.8 times higher than the 9.9 multiple for Nuvve Corp.
In addition, ChargePoint has a very high enterprise value-to-sales multiple, even for 2021. I estimate that it trades right now at 59 times enterprise value-to-sales. This is six times higher than the 9.9 multiple for NBAC/NVVE.
On page 33 of ChargePoint’s presentation, Switchback Energy says the combined company will have 304.9 million shares outstanding once the merger closes. This gives it a pro forma market capitalization of $12.348 billion at the SBE stock trading price of $40.50 on Jan. 26. After deducting $648 million in net cash on the pro forma balance sheet, the enterprise value is $11.7 billion.
Since ChargePoint estimates, on page 31 of its presentation, that its 2021 revenue will be $198 million, the enterprise value-to-sales multiple is 59 times. This is seen by dividing $11.7 billion by $198 million.
What NBAC Stock Is Worth
So Blink is at 177 times enterprise value-to-sales, and ChargePoint (SBE stock) is at 59 times, but NVVE/NBAC stock is at just 9.9 times 2021 sales.
That is quite a difference. My estimate that NBAC stock could easily double from here is clearly applicable. But even if we forget the Blink ratio as an outlier and only use ChargePoint, and if we discount it by two-thirds (for its Nuvve’s smaller size), the target ratio would be 19.6 times. This is seen by multiplying the 59 enterprise value-to-sales multiple by 33%.
Therefore, even taking into its smaller size, NBAC stock should be 19.6 times enterprise value-to-sales. That is still 98.5% higher than its 9.9 multiple. This implies that Nuvve’s pro forma enterprise value should be $631 million (i.e., $318 million times 1.985). Adding back the $70 million in cash gives it a pro forma market value of $701 million.
Therefore, comparing NBAC’s pro forma market value right now of $388 million with its $701 million target value implies a potential gain of 80.7%. This implies that NBAC stock should be trading at $34.50 per share. Not a bad return for most investors in NBAC stock.
On the date of publication, Mark R. Hake holds a long position in Newborn Acquisition (NBAC) stock and Switchback Energy (SBE) stock.