The SPAC Selloff Creates an Opportunity in TPG Pace Beneficial Finance

Since February, investors have sold off SPACs (special purpose acquisition companies) and electric vehicle (EV) stocks. TPG Pace Beneficial Finance (NYSE:TPGY) is both — which explains the weakness in TPGY stock.

KIA electronic vehicle charging
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TPGY is down by more than 50% just since February. It’s been a brutal selloff, but one that I believe creates an opportunity.

After all, nothing really has changed. The merger with European EV-charging developer EVBox should still be on; TPG Pace expects it to close in June. With TPGY stock still around $15, shareholders aren’t going to redeem their shares for $10, as is their right.

The broader EV opportunity obviously is intact. If anything, aggressive plans by President Joe Biden’s administration might even accelerate adoption in the U.S., while Europe’s growth continues apace.

Admittedly, some SPACs and EV stocks ran too hot toward the end of 2020 and into this year. Corrections were needed.

But I’m not sure TPGY stock was one of the names that needed a correction. It certainly didn’t need a correction of this size. The 50%-plus selloff leaves the stock too cheap given its potential.

The Case for EV-Charging Plays

At this point, it’s quite clear that EV adoption is a question of when, not if.

The environmental benefits alone are substantial. They’re driving increased support from governments. And they’re creating higher interest from consumers and businesses who want to minimize their carbon footprints.

But it’s not just environmentalism that will drive demand. EV manufacturers are making better, even more thrilling, vehicles. Going “green” doesn’t require a sacrifice anymore.

There are financial benefits as well. Electric motors are far simpler, and thus easier to maintain and repair. EVs have a significant “total cost of ownership” edge over their ICE (internal combustion engine) counterparts.

Electric vehicles aren’t going to take a small slice of the automotive industry. They’re going to be the automotive industry, though obviously that process will take time.

That growth makes EV-charging plays like TPGY stock attractive for one simple reason: Those stocks offer a direct play on EV adoption. More electric cars will require more electric charging stations.

It’s just that simple. It doesn’t matter which EV manufacturers win. It doesn’t matter which suppliers win. As long as EV usage expands, charging-station developers are going to prosper. And EV usage is going to expand.

The Case for TPGY Stock

Of course, investors do have to pick the right EV-charging play. It’s a competitive space, and we’ve seen a number of developers that, like EVBox, have agreed to go public via the SPAC route.

But TPGY looks like it could, and should, be the right play.

EVBox is the charging-station leader in Europe. It’s now expanding into the U.S. — and the company sees its European experience as a key edge.

As the company noted in the merger presentation, the European market is difficult. Regulations change from country to country. Furthermore, 24 different primary languages are spoken.

It’s far easier for EVBox to go from Europe to the U.S. than it will be for U.S.-based rivals to cross the Atlantic in the opposite direction.

So in Europe, growth should continue. The U.S. offers a huge opportunity. Adding software revenue should only add to top-line increases and improve profit margins as well.

Indeed, EVBox is seemingly off to a good start. Last month, it raised its expectation for 2020 revenue to something in the range of 72 million EUR to 75 million EUR. That’s up from a guided 70 million EUR when the merger was announced in December. It expects revenue to triple over the next two years — and that’s only scratching the surface of EVBox’s potential.

Improved Valuation

And after the pullback, its valuation is more reasonable.

Certainly, TPGY stock isn’t cheap. Against 2020 revenue guidance (which at the midpoint translates to about $89 million), and pro forma for the merger, shares trade at about 20x revenue.

But if you look out — as growth investors should — the multiple compresses in a hurry. Relative to 2022 projections, we’re at 7x. Profitability should begin to follow in 2023.

Obviously, investors can’t blithely assume EVBox will hit its projections. But as long as the company grows, the valuation will take care of itself.

In fact, it will do more than that: Shares will rise, and the returns could be huge. Few companies in the market have the opportunity that EVBox does. Investors were focused on that opportunity just a few weeks ago, and once this volatility ends, they’ll be focused on it again.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now 

 


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