Switchback Energy Acquisition Corp (NYSE:SBE), a special purpose acquisition company (SPAC agreed on Sept. 24 to merge with ChargePoint, an electric vehicle (EV) charging startup. SBE stock is now around $15.00 from $10.00 when it went public.
The market realizes that the merger with ChargePoint is going to be an electrifying winner. By my analysis it is still worth over 56% more than today, even though SBE stock is up 54% from its $10 IPO.
Let’s investigate this further.
ChargePoint is a leading electric vehicle charging network in North America and Europe. The company is not profitable and does not expect to be until 2025.
However, it won’t need any more funding before it reaches EBITDA (earnings before interest, taxes, depreciation, and amortization) profitability.
This is because ChargePoint expects massive growth in revenue in its near term future.
A Closer Look at SBE Stock
For example, if you look on page 11 of the ChargePoint slide presentation shows growth trajectory over the next five years. ChargePoint’s stations will scale on pace with EVs penetration.
ChargePoint enables existing public and private companies and organizations to convert parking spaces into charging points for EVs. That said, they make money off of their software and equipment.
Switchback Energy, the SPAC that will do a reverse merger with ChargePoint, said the deal is worth $2.4 billion in implied enterprise value. This is after deducting $648 million in net cash from the implied equity value that ChargePoint will have at the close of the deal.
But keep in mind that the enterprise value calculation, which is market equity value less any net cash, was based on a $10 price assumption for SBE stock. We can’t use that valuation any more as the price has gone up. In other words, the equity portion of the deal is now up 54%.
To see what ChargePoint is worth, turn to the slide presentation on pages 33 to 35. At $10.00 per share, the implied equity value is $3.049 billion. But with $648 million in net cash, the implied enterprise value is $2.401 billion.
As SBE stock approached $15, the implied equity value is closer to $4.6 billion. And, therefore, the implied enterprise value is approaching $4 billion. Now that we know what its present value, what is it worth?
The answer is readily available. It is on pages 34 and 35 of the slide. ChargePoint has already done that valuation estimate for us. On page 35 they estimate that ChargePoint, compared to its peers, is worth between $4.115 billion and $9.258 billion in enterprise value.
By the way, this shows one of the real advantages that SPAC deals have over IPOs. This kind of valuation estimate would never be in an IPO prospectus. In other words, well put together SPAC mergers provide value investors a clear guide map.
Let’s look at the ChargePoint valuation, and then compare it to its present market value.
Bottom Line on SBE Stock
The midpoint enterprise valuation for ChargePoint, shown on page 35, is between $4.12 billion and $9.26 billion, or $6.6865 billion. Now, remember this includes a deduction for the net cash of $648 million. Therefore the implied equity value at the midpoint of ChargePoint’s valuation is $7.3345 billion (i.e. $6.6865 billion plus $648 million).
In addition, since there will be 304.9 million shares outstanding on a diluted basis, ChargePoint’s target price is $24.06 per share. This is derived by dividing $7.3345 billion by 304.9 million shares outstanding, or $24.06 per share.
The bottom line is that since SBE stock is trading for $15.39, it is worth 56.3% more than today (i.e. $24.06 divided by $15.39). That is a great expected return.
Also, astute investors will realize that the in-the-money warrants for SBE stock are a much better way to invest in the Switchback Energy stock. The symbol for these warrants is SBE.WT or SBE-WT, depending on which brokerage you use.
I wrote an in-depth article explaining in-the-money warrants for announced merger SPAC deals. The article shows why they are a better investment for less risk-averse investors in the long-run.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
