New report by Mackie naming Daimler ACTION – Upcoming Auto Show & Investor Meetings Reinforce Conviction
Positive investor meetings suggest company gearing up for order intake from existing
design wins. We hosted institutional investor meetings in Toronto on Aug 31st with EGT
CEO Justin Holland and CTO, Founder, Brent Harris. The tone of meetings was positive. It
appears order intake from EGT’s German automotive customer and E-Gear in Hawaii should
be within grasp. We believe EGT’s cash balance of ~$5-6 mln, bolstered by proceeds from
the Jun equity financing should provide the company runway of at least a year to convert
design wins into revenue (cash burn ~$1 mln/qtr).
Positive German automotive news could be coming with volume orders expected in the
fall. Recall, with Q3 (Jun) F2016 results reported recently, EGT signalled progress with
this important customer (widely speculated to be Daimler). A transition to field trials was
highlighted as first units were delivered in mid-Jun. In our Jul initiation, we highlighted
that EGT entered into a development contract with a battery manufacturing subsidiary of
a global German automotive company.
DETAILS – Paris Show Next Month Could Reveal Automotive Catalyst Details
German carmaker, Daimler, appears to be planning large electric vehicle push. Daimler
plans to roll out at least six, and possibly as many as nine, electric car models as part of its
push to compete with Tesla and Volkswagen's Audi, according to Reuters on Sept 3rd
(https://reut.rs/2bKGCFS). Reuters added that Daimler remains on track to unveil a new
electric car at the Paris motor show next month. In July, Daimler had accelerated
development of premium electric cars. German trade magazine Automobilwoche earlier
cited company sources as saying Daimler would bring to market more than six electric car
models between 2018 and 2024. Reuters' also indicated
IMPACT – Re-Iterate $0.70/Sh Target, SPECULATIVE BUY
Our $0.70/sh one –year target is based on our blue-sky upside discounted back three
years at 25%/yr. We are not yet introducing quarterly estimates pending additional clarity
on the timing of design win-revenue translation.
EGT’s design wins could support ~$57-75 mln revenue blue-sky vs. ~$1.5 mln/qtr in H1
C2015. EGT’s two most compelling revenue opportunities could scale to ~$60 mln/yr
annual revenue. Recall, we have previously suggested, EGT's Hawaii revenue opportunity
could be ~$3 mln/month driven by ~600 units/ month at ~$5K/unit. European
automotive maker opportunity could eventually be 10-20K units annually; initially likely
~1K units/month at $2K/unit.
Stock could offer upside as investors gain comfort on design win conversion. EGT
traded at ~4.5x trailing sales last summer, with revenue trending at an annual ~$6 mln/yr
run-rate. Applying historical valuation (4.5x Sales) to a blue-sky ~$60 mln/yr annual
revenue run-rate equates to a stock price ~$1.30-1.40/sh; all else equal, IF EGT can
successfully translate design wins into revenue as management expects.