CIBC ReportAll prices are in US$. GLTA
EQUITY RESEARCH
January 25, 2022 Earnings Update
LION ELECTRIC COMPANY
Adjusting Valuation Metrics To Reflect Rising Rate Environment
Our Conclusion
We are adjusting our valuation on LEV to reflect the current rising rate
environment and the impact it is having on high-growth names. While we are modeling LEV’s net income to inflect positively in 2023, we recognize there isa heightened level of execution risk as the company continues to work to build out its capacity and backlog. Our estimates are unchanged but our price target falls $4 to $16.
Key Points
We’ve seen share prices of new mobility companies decline ~40% YTD,
reflecting the impact of rising rates on high-growth companies. We would
note that it has not been just within the commercial EV sub-segment, but EV bellwether Tesla is also down ~15% during the same time period.
We have adjusted our valuation to reflect the current rate environment. While we are modeling LEV’s net income to inflect positively in 2023, we recognize there is a heightened level of execution risk as the company continues to work to build out its capacity and its backlog. We used a blended valuation approach to derive our $16 price target, down $4. We apply a 1.5x sales multiple (previously using 2.0x) to our 2025 estimate, an 8x EBITDA multiple (previously using 10x) to our 2025 estimate, and a DCF back to our target year (2023) using a 17% discount rate (previously using 13%). The range of values we get using these methodologies is $15.73 to $22.06, and we use the lower end of this range for our price target.
We have not made any changes to our financial forecast. While rising rates are a headwind for high-growth names, we continue to view LEV as well positioned given the accelerated push to electrify the transportation sector. We also recognize we are in the early innings of this transformation, and therefore evaluate LEV on a number of key performance indicators (KPIs) to determine whether our long-term view on the company remains intact. Specifically, we are looking at KPIs around the execution of its strategies, such as deliveries, backlog and capacity growth/investments. While supply chain issues have been a headwind, LEV does benefit from a first-mover advantage by already offering a commercially viable product with a proven, customer-accepted technology