There’s Probably Not Much Left in the Tank for the Northern Genesis SPAC

Northern Genesis Acquisition Corp (NYSE:NGA) announced on Nov. 30 it was going to merge with electric vehicle (EV) truck and bus maker Lion Electric. But NGA stock has already moved up so much that it incorporates much of the future value of Lion Electric or LEV stock. (When Lion Electric merges with NGA stock, the symbol will change to LEV instead of NGA.)

A close-up shot of an electric vehicle charging station with a row of electric buses in the background.

Source: Shutterstock

For example, as of Jan. 27, NGA stock was at $24.55, up from around $10, as of Nov. 16, right before its Nov. 30 announcement. In other words, even though the company said the implied market value of the deal was $1.9 billion, this was at $10.00 per share.

However, now the pro forma market capitalization is $4.784 billion since there will be 194.9 million shares outstanding. That can be seen on page 29 of Lion Electric’s slide presentation.

Moreover, since there will be $443 million in net cash on the balance sheet, its enterprise value is $4.34 billion. This is a very high valuation. I contend that it likely incorporates much of the future value for Lion Electric well after it closes the merger.

Lion Electric’s Future Value

Anyone interested in investing in NGA stock (LEV stock) should carefully review page 31 of the presentation. This page lays out the company’s own estimates of its future revenue and profitability.

I was very impressed with this page. It shows that the electric truck and bus maker expects to be free cash flow positive by 2023 and especially in 2024.

For example, Lion Electric forecasts that by 2023 it will be making 7,580 bus and truck units and produce $1.672 billion in revenue. Moreover, it expects to make $295 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

By 2024, it forecasts $3.625 billion in revenue and $707 million in EBITDA. In other words, it expects to start slow but really take off in several years.

Therefore, its $4.34 billion enterprise value is valued at 14.7 times EBITDA in 2023 (i.e., $4.34 billion divided by $295 million). By 2024, its EV-to-EBITDA multiple is 6.14 times.

Those are pretty full valuation metrics, especially since they are so far in the future and there are many risks until then.

NGA Stock Compared to RIDE Stock

For example, let’s compare NGA stock to Lordstown Motors (NASDAQ:RIDE). Their presentation has very similar forecast numbers, except they are about a year ahead of Lion Electric.

For example, on page 24 of the Lordstown Motors slide presentation, they expect to make $1.69 billion in revenue by 2022. In addition, by 2o23 they forecast revenue of $3.476 billion.

This compares with $1.67 billion in 2023 and $3.67 billion in 2024 at Lion Electric. In other words, similar numbers but one year behind.

However, Lion Electric is actually expecting to be more profitable. For example, Lordstown forecasts just $10 million in EBITDA on $1.69 billion in revenue in 2022. But Lion Electric expects to make $295 million on $1.67 billion of revenue in 2023. That’s 30 times more profitable.

Moreover, in 2023, Lordstown forecasts $298 million in EBITDA on $3.476 billion of revenue. But Lion Electric says it will make $707 million on $3.625 billion of revenue in 2024.

The Bottom Line on Northern Genesis

Here is the valuation comparison. Lordstown stock trades for $4.36 billion in market capitalization. This is lower than NGA stock, which as I noted above trades at a pro forma market cap of $4.784 billion.

But maybe that is where it should be since it has much higher profitability than Lordstown stock. In other words, the RIDE stock market value is about 10% lower than the NGA stock market value. But it is about one year ahead of RIDE stock in terms of profitability.

I suspect therefore that this means that NGA stock is fairly valued. In other words, most of the upside is already incorporated into NGA stock, at least compared to Lordstown’s valuation.

On the date of publication, Mark R. Hake did not hold a long or short position (either directly or indirectly) in any of the stocks in this article.

Mark Hake writes articles on personal investing at mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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