Switchback Energy Acquisition Corp (NYSE:SBE) SPAC (special purpose acquisition company) has set a second special shareholder meeting for Feb. 25. SBE stock is still undervalued, so it’s likely the deal will go through.
SBE SPAC hopes to close the reverse merger with ChargePoint, the largest electric vehicle charging network in the U.S. (Once the deal closes shortly thereafter SBE stock will change its symbol to CHPT.)
Right now the stock is still at least 12% undervalued. I estimate it is worth at least $42.81, but it could rise significantly higher. This article will describe how I came up with that valuation.
Pro Forma Market Values
Since SBE stock was at $37.98 per share on Feb. 12, we have to adjust some of the numbers. For example, on page 33 of the slide presentation, we can use the number of shares listed on a pro forma basis once the merger closes to set the pro forma market capitalization.
In addition, we can use the total cash raised from the deal, minus the debt repayments and deal costs, to determine the pro forma enterprise value.
You can see this calculation in the table I have put together at the right. It shows that the pro forma market cap is now $11.58 billion and the enterprise value is $10.93 billion.
We can use these figures to find its enterprise value-to-sales ratios as well as its target market cap and price.
Adjusting ChargePoint Forecasts
On page 31 of Switchback Energy’s slide presentation, the company presents ChargePoint’s revenue and adjusted EBITDA forecast. These go out to 2o27.
Looking closely at these numbers, it is clear that ChargePoint expects its revenue to essentially go through the roof.
For example, in 2021 it forecasts 47% growth over 2020, but in 2022 that rises to 75% growth and similar levels for the next several years.
You can see this in the table I put together at the right. It shows that by 2027 revenue will be $2 billion. This works out to an annual average growth rate of 57.6%. That is incredible.
You can also see in the table that by 2027, the enterprise revenue-to-sales multiple falls from 55 times in 2021 to just 5 times in 2027.
But we cannot use that ratio. It is simply too far out in the future. For one, any investor would want to have a hurdle rate or opportunity cost rate. This covers the otherwise use of his investment money in SBE waiting six years in the future.
In addition, we use a 15% discount rate to adjust for risk over the next six years.
The next table on the right shows these adjusted revenue numbers.
This lowers both the absolute numbers so that by 2027 revenue is actually just $894 million, instead of more than $2 billion. The average annual growth rate falls to 229%. It also raises the 2027 enterprise value-to-sales ratio to 12.2 times.
How to Value SBE Stock
On pages 36 and 37 of the slide presentation, you can see that ChargePoint compares its revenue growth to its peers. It says the peer growth rate is 43% versus ChargePoint’s 45% revenue growth rate over the next two years. This implies that ChargePoint should have a slightly higher premium valuation or 4.5% more.
We can use this when comparing the average enterprise value-to-sales ratios of ChargePoint’s peers. On page 37 of the slide presentation, ChargePoint says that its peers have a median enterprise value-to-sales multiple of 8 times. Now when we apply a 4.5% premium, then ChargePoint should show a target enterprise value multiple of 8.4 times.
The next two tables show how I did this. The adjusted target value, based on a 12.2 enterprise value-to-sales multiple, is just $26.69. That represents a loss of 30% from Feb. 12.
However, the unadjusted target price, based on SBE stock having a 5.3 times enterprise value-to-sales ratio is $58.94. That represents a gain of 55% over the Feb. 12 price.
Therefore, the average between the two numbers is $42.81 per share. This represents a potential gain of 13% from Feb. 12.
Therefore, SBE stock is worth somewhere between a loss of 30% and a gain of 55%, or an average of $42.81 per share. I suspect that once the merger goes through the market will revalue SBE stock (CHPT stock then) somewhere between 13% and 55% higher.
On the date of publication, Mark R. Hake does not hold a long or short position in any of the stocks in this article.