On Sept. 3, Kensington Capital Acquisition Corp (NYSE:KCAC) agreed to absorb with an EV array maker, QuantumScape. The accord has an adumbrated action bulk of $3.3 billion and will accommodate $1.1 billion in banknote and allotment commitments to QuantumScape.
The aggregation is developing next-generation solid-state lithium-metal batteries, as against to lithium-ion batteries anon acclimated in electric vehicles. These are accepted as solid-state electric batteries. The aggregation has a accord with Volkswagen (OTMKTS:VWAGY) to install its batteries in their cars.
The banal attribute and the warrants will change their attribute to QS and QSW appropriately aback the alliance closes.
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Right now Kensington Capital is trading for $18.73 per allotment and has a bazaar bulk of $540 actor for its 28.75 actor shares outstanding. The aggregation claims that, based on its accepted 2027 sales, the action bulk will be $3.3 billion.
We can use that advice to appraisal the bazaar value. For example, QuantumScape expects to accept $1.15 billion in banknote from disinterestedness sales and QuantumScape’s absolute banknote at the abutting of the merger.
Since an action bulk adding adds in debt and subtracts cash, we can about-face out the banknote to appraisal the bazaar capitalization. So $3.3 billion added to the $1.15 billion in banknote agency the estimated 2027 bazaar assets will be $4.45 billion.
I doubtable that is account at atomic 50% aloft the bulk at which it was trading above-mentioned to the announcement, or $22 per share. Part of the acumen for this is because QuantumScape has its own cogent assets. For example, it has $471 actor of its own banknote of $484 actor in accession to over 200 patents, based on folio 7 of its accelerate presentation.
QuantumScape has congenital a business on the abstraction that lithium-metal is the abutting bearing array afterwards lithium-ion. That makes it a solid-state array which will be safer than lithium-ion. Volkswagen is a bulk customer. It formed a collective adventure to accomplish solid-state batteries for Volkswagen.
More importantly, the aggregation has provided a advantageous bump of acquirement on folio 28 of its accelerate presentation. This shows that it expects to accomplish $808 actor in EBITDA by the end of 2027. Sot its present post-closing EV of $3.3 billion will be 4 times EBITDA.
Moreover, the abutting year EBITDA will be $1.62 billion. That puts it at 2 times EV/EBITDA in 2028. Obviously that is too low. By that time the bazaar bulk would be at atomic 4 times that amount, or $13 billion in EV, or $14 billion in bazaar cap.
Discounting that aback to the present at 10% over 8 years at 46.65% of its $14 billion bazaar cap, or $6.53 billion. This is about 47% aloft its present $4.45 billion bazaar cap post-merger.
So, in effect, Kensington Capital is account about 50% added than its present price. And that is aloof if you bulk the aggregation at 8 times EV to EBITDA in eight years, discounted aback to the present.
If it gets a college appraisal then, like a Tesla (NASDAQ:TSLA) valuation, the banal is account abundant more. For example, if its accord with Volkswagen takes off alike further, or they booty on beyond audience than expected, again its estimated EBITDA and sales could be higher. That could advance to a college bulk as well.
However, there are some critics. This broker on YouTube, Dave Lee, credibility out that Tesla is additionally experimenting with lithium-metal batteries. But they are activity in a altered abstruse administration than QuantumScape.
Tesla is allegedly experimenting with application a aqueous electrolyte instead of a metal electrolyte, although still application lithium metal as an anode. In added words, Tesla has array of alone QuantumScape’s approach. They don’t appetite to use QuantumScape’s solid-state technology. There is no acknowledgment of Tesla at all in QuantumScape’s presentation.
So accumulate that in apperception aback advance in QuantumScape. That is a bright red flag. Why would the better EV maker in the apple not be accommodating to use their technology? In added words, QuantumScape will accept to assignment harder to get to this appraisal than they would contrarily if they had Tesla as a client.
On the date of publication, Mark R. Hake did not accept (either anon or indirectly) any positions in any of the balance mentioned in this article.
Mark Hake runs the Total Yield Bulk Guide which you can review here.