Since TPG Beneficial Finance (NYSE:TPGY) announced its merger with European charging station developer EVbox, in December, TPGY stock has better than doubled. It’s not hard to see why.
Since early November, anything connected to electric vehicles has soared. Democratic control of the Huse, Senate and Presidency suggests increased EV subsidies at the federal level.
The exponential growth at Tesla (NASDAQ:TSLA) has proven that a real consumer market exists both in the U.S. and abroad. Businesses increasingly are looking to EVs as well, whether for long-haul semis or ‘last-mile’ delivery trucks.
It’s going to take charging station infrastructure to support that industry growth. And so TPGY stock has gone from a $10 merger price to $25.
It’s far from alone. Blink Charging (NASDAQ:BLNK) was below $10 at the beginning of November and now trades at $45.
Switchback Energy (NYSE:SBE), a special purpose acquisition company (SPAC) like TPG Pace Beneficial Finance, is merging with ChargePoint. SBE stock has more than tripled. Climate Change Crisis Real Impact I Acquisition (NYSE:CLII) is bringing EVgo to the public market and has gained 69% year-to-date as a result.
The rallies have started to show some cracks. All four EV charging stocks have faded of late. As I write this, TPGY stock itself is on a losing streak, dropping more than 20%.
For EV bulls, that decline seems like a potential buying opportunity. The entire space does have risk, to which the TPG-EVBox tie-up is not immune. But if investors are willing to take on that risk, TPGY stock looks like the choice.
The Case for Charging Plays
There are two core reasons for long-term optimism toward charging station developers.
The first is that the group obviously is a play on the growth of the overall industry, but as Switchback pointed out at the time of its merger, it’s an agnostic play on the growth of the industry.
To EVBox or ChargePoint or any other developer, it doesn’t matter who actually makes the cars. As long as EV penetration rises, charging station revenue grows. For the most part, whether it’s a Tesla or a Lucid or a General Motors (NYSE:GM) model is immaterial.
More EVs equals more revenue. The simplicity of that case makes the group particularly attractive to EV bulls.
Another attraction is the ability for revenue and profit margins to increase on top of that industry-driven growth rate. As TPG and EVBox noted in their merger presentation (see slide 13), recurring revenue grows over time.
Charging station owners will need EVBox software to manage their stations, while higher utilization generally means higher transaction fees as well. Switchback made a similar argument in its presentation.
At the moment, charging station revenues aren’t all that high. EVBox, for instance, is expecting about $85 million in 2020 revenue. ChargePoint estimates its sales over roughly the same period to come in at $135 million. Blink and EVbox are far smaller.
But the group has the potential for exponential growth over the next decade and beyond. That growth is what investors are paying up for.
The Case for TPGY Stock
With the four EV charging plays now on their way to the public markets, there is an irony. The case for the group is predicated in part on not having to pick a winner among EV manufacturers. But investors, particularly with the rallies across the space, may well have to pick a winner among the charging station developers.
On that front, TPGY stock looks like the choice. EVBox’s market share lead in Europe bodes well given that the Continent is ahead in EV adoption and infrastructure. EVBox is targeting the U.S. market as well.
Its expansion has a potentially easier path than that of ChargePoint, which is going from a U.S. base to Europe. As EVBox noted in the merger presentation, the European market is complex. Each country has its own requirements for hardware and software. It may well take ChargePoint far more time to penetrate its new market than it will EVBox.
Yet TPGY trades at a notable discount to SBE, at least based on near-term revenue expectations. EVBox is looking for $146 million) in 2021 revenue, and ChargePoint $198 million. ChargePoint, however, has an enterprise value (pro forma for the merger) of almost $11 billion. EVBox’s valuation is right about $3 billion.
Meanwhile, Blink (with estimated revenue this year of just over $5 million) and EVgo/CLII (which is targeting about $14 million) seem too small. Fundamentally, TPGY looks attractive, while its qualitative case can compete with that of any in the space.
Mind the TPGY Stock Price
Of course, there is a risk to the sector as a whole: valuation. TPGY looks cheaper relative to peers on an EV/2021 revenue basis, but it still trades at more than 20x next year’s sales. That’s ‘cheap’ relative to the 50x-plus figure for SBE, and the 250x-plus figure for BLNK.
That’s not a multiple that is necessarily cheap. There’s definitely a short- to mid-term risk that the entire sector pulls back, and TPGY stock would be vulnerable in that scenario.
Long-term, however, the merger looks intriguing. And the price is better than most other charging station plays, and even most other EV plays as a whole. There’s a nice case here and a cheaper price, which means TPGY stock should be on every EV investor’s watchlist — at least.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.