ace1mccoy wrote: National Bank Financial analyst Rupert Merer thinks Exro Technologies Inc. (EXRO-T +2.41%increase
) has accelerated its growth with the $402-million acquisition of SEA Electric Inc., calling it a “strong” deal and seeing “upside on execution of the sales ramp and further progress on [its] market developments.”"
In response to Friday’s announcement of shareholder approval of the deal, which was announced in January, Mr. Merer raised his recommendation for Exro, a Calgary-based clean technology company, to “outperform” from “restricted” previously.
“SEA is a proven EV powertrain technology company focused on commercial vehicles,” he said. “The company has deals with Mack (5 years, up to 3,500 units/yr) and Hino (3 years, up to 5,000 units/yr) which could reach $200-million in revenue in ‘24 and more than $300-million in ‘25. SEA’s patented SEA-Drive technology is 25-35 per cent more efficient than competitors according to independent studies. Exro’s coil driver, when added to the systems, could add more than 5-per-cent incremental efficiency in addition to improved performance, charging and lower costs. The acquisition accelerates EXRO’s path to profitability and positions it as an asset light, endto-end solution for electrifying commercial vehicles. With execution on its coil driver contracts and SEA’s backlog, EXRO could reach breakeven EBITDA and FCF in ‘25.”
“Alongside the acquisition, EXRO raised $30-million (gross) via a bought deal of subscription receipts at .95 per share. The capital should support the integration of SEA and the working capital needs for a production ramp. We believe EXRO may need additional capital to support its ramp, which could include balance sheet financing or equity. EXRO targets $20-million of synergy ‘24 and $47-million by ‘25E, with $220-million in revenue for 2024 (NBF $190-million), assuming 1,150 Mack/Hino unit sales and 1,200 EXRO coil driver sales.”
After raising his 2024 and 2025 revenue and earnings projections, Mr. Merer trimmed his target for Exro to $1.60 from $2. The average on the Street is $1.70.
“Looking at Exro’s peers in energy technology, inverter manufacturers and EV OEM, the EV/sales multiple for the sectors average 1.4-2.3 times (FY2), but typically the stock-specific multiple is well correlated to revenue growth,” he said. “Exro has higher revenue growth forecasted than for the peer group, and we believe that warrants a multiple closer to the upper range of peers. With strong partnerships, a proven platform and opportunities for further developments, we like the transaction. Our target moves to $1.60/sh (was $2/sh), which is based on an EV/sales multiple of 2 times (was 2.7 times) on 2025E, in line with the peer group. Our target is also supported by a DCF with a 13.7-per-cent discount rate, though with a lack of visibility past 2025E, we are more confident in a near-term multiple approach to valuing the company. With the shares trading at .81/sh, we see good upside potential for the stock, and we are moving to Outperform. The company has some execution risk, and some investors may wait to see evidence of the inflection point in both EXRO and Sea to get more excited, especially considering the challenging industry backdrop in the electric vehicle space.”