Investors may be bailing out of “story stocks” like EV plays right now. But TPG Pace Beneficial Finance (NYSE:TPGY) stock looks very attractive as it pulls back in price. The SPAC (special purpose acquisition company), has a deal in the works to merge with electric vehicle charging company EVBox Group.
EVBox, currently a wholly owned subsidiary of French utility giant Engie S.A., first focused on its home turf, the European market. But, looking to expand globally, it stands a chance of becoming one of the major players in this fast-growing industry.
With EV stocks trending lower, you’re probably thinking, why buy now? If investors continue to cycle out of this sector, this blank-check company could continue to pull back, perhaps toward its offering price of $10 per share.
Admittedly, it’s possible. Yet, while the stock could head lower in the near term, it’s not guaranteed. With this stock already more than a steal at $20 per share, it’s not worth it to split hairs in an attempt to time the market. Instead of sliding back to $10 per share, the stock could mount a recovery back to higher prices.
It’s not just valuation that makes this a solid play on vehicle electrification. With its past success, and its exposure to the European market, it may scale up much sooner than its rivals.
Why The EVBox Deal Looks Like a Winner
Sponsored by private equity firm TPG, this SPAC was set up to merge with a company that meets ESG (environmental, social and governance) standards. With EVBox, it’s found the perfect merger target. Some blank-check companies looking to become an electric vehicle company have gone with early-stage EV manufacturers as their merger targets.
But it may be charging companies like this one that are the stronger contenders to take a risk on. There are scores of aspiring EV-makers out there. But, with heavy competition from both established EV names and incumbent automakers, only a few will wind up becoming winners.
However, in areas like EV charging, there’s more of an opportunity for an upstart to capture significant market share. Is this the case with EVBox? Yes.
The competition may be ramping up. But as InvestorPlace’s David Moadel discussed Feb. 17, the company has more than enough early success it can build on to take on the likes of Blink Charging (NASDAQ:BLNK) and ChargePoint (NYSE:SBE).
In short, you can see why this SPAC decided to go with EVBox as its merger candidate. Of course, it’s not enough for a company to have great prospects to make its underlying stock a worthwhile buy. Getting in at a fair (or more than fair) valuation is key. Fortunately, that’s also the case here with TPGY stock.
When our own Mark Hake ran the numbers Feb. 18, he concluded the stock at around $30 per share looked deeply undervalued. And now, at today’s prices, they appear to be more of a bargain, compared to projections.
A Steal at $20 Per Share
Like with similar plays, investors aggressively bid up TPG Pace shares on news of its merger deal. Shares at one point were trading at more than three times their offering price of $10 per share. But now, with growth stocks trending lower, shares have slid back to $20 per share.
This has meant big near-term losses who bought it TPGY stock near its highs. Yet, those looking at it now could get in at prices that may look like a steal in hindsight. Why? Let’s run the numbers. Based on the pro-forma valuation provided in the December investor presentation, the share count will rise to 139 million once the merger closes. At $20 per share, that’s around a $2.8 billion market capitalization.
Deducting the $425 million in net cash resulting from the transaction, that gives us an enterprise value of around $2.4 billion. Compare today’s implied enterprise value against projected 2023 earnings (€372 million, or $450.6 million), and valuation looks very attractive (EV-sales of 6.2x).
Sure, this stock being a “steal” hinges on it living up to projections. But, taking into account the opportunity in its home market, this may be one of the few SPACs that turns its slide deck projections into tangible results.
The Bottom Line on TPGY Stock
Another interesting takeaway from this SPAC’s merger presentation: the whole European angle. With the company still focused largely on Europe (which is making a more aggressive push towards electrification), EVBox could scale into a profitable business much sooner than its American counterparts.
Given this added advantage, along with the fantastic, implied valuation, and TPGY stock looks to be a great opportunity as “EV mania” wanes, pushing this still-hot sector down to lower prices.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.