Cenntro Electric Group (NASDAQ:CENN) is a new public electric commercial vehicle (ECV) manufacturer that closed its reverse merger with Naked Brand Group at the end of last year. It changed its symbol to CENN from NAKD. But since then CENN stock has been pummeled during January 2022. It now looks quite interesting.
As usual in these kinds of reverse merger deals, the details are very convoluted and it’s hard to grasp exactly where things stand.
But here is my attempt to figure out why I think CENN stock looks interesting here. I don’t say it’s cheap, but I could be off by a large factor, given that it’s still not clear to me what the total fully diluted share capital base really is right now.
Where Things Stand With CENN Stock
Based on a recent SEC 13-D filing on Jan. 26, it looks like insiders believe that there are now 261,256,205 ordinary Shares outstanding as of Jan. 4, 2022, So at today’s price for CENN stock (Feb. 1) of $1.73 that puts the market value at $453.27 million.
However, based on a paragraph on page 5 of a 6-K filed on Jan. 5 with the Securities and Exchange Commission (SEC), there were more shares outstanding than this after the combination. The paragraph says that the reverse merger resulted in the issuance of
“174,853,546 Ordinary Shares, which represents approximately 66.9% of outstanding Ordinary Shares immediately following the closing of the Combination.“
So if we divide 174.853546 million by 0.669, the total number of shares would be 261.365540 million shares. That puts its market value today at $449.5 million.
In addition, the new company issued shares for $20 million to a Hong Kong investor group. But it’s not clear whether that is included in the reverse merger combination shares or there are additional shares issued.
That is what I mean about the convoluted nature of the specific details of this transaction.
What CENN Stock Might Be Worth
However, there are certain things we know that might help us value the stock. First of all the company has a good deal of cash in the bank. Based on page S-2 of a prospectus filed on Nov. 17, before the deal closed, the company had “at least US$282 million immediately prior to the Closing.” It’s not clear whether this includes the $20 million in capital raise that was announced prior to the closing.
It also had “liabilities of no more than US$10 million in the aggregate immediately prior to the Closing.” So, its net cash is about $272 million.
So, based on its market cap of $449.5 million, the net cash now represents 60.5% of its market valuation. Put another way, the net cash represents $1.04 of the stock price of $1.72.
That implies that the ECV business is valued at just 39.5% of $449.5 million, or $177.55 million. That probably seems too cheap for the “stub” value of Cenntro Electric Group ex its cash.
For one, the company said it just received an order for 2,000 ECVs for export to Japan, which it was supposedly going to deliver in Jan. 2022. Moreover, page 11 of its slide deck presentation says that revenue for 2021 was estimated at $25 million and $506 million in 2022 for 22,000 units delivered.
This means it is trading at just 35% of estimated sales for 2022. That is calculated by dividing $177.55 million in stub value by the $506 million in forecast 2022 sales. This is way too cheap.
If my calculations are correct, then CENN stock should trade for three to six times more than its present price.
For example, at 3 times its price, or $5.16, less the $1.04 in net cash, puts its stub value at $4.04 per share or $1,056 million (i.e., $4.04 x 261.3655 million shares). That gives it a value of 2 times sales (i.e., $1.056 billion / $506 million forecast sales).
This is a minimum valuation for CENN stock. It looks very interesting, assuming these numbers can be verified by the company when it next produces some definitive financial statements. That is not expected to occur, however, until April 2022. So until then, investors might have a unique opportunity to pick up good value with CENN stock.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.