VectoIQ Acquisition Corp.

 

VTIQ Details
 
VectoIQ Proposed Merger With Nikola: Based in New York, United States, VectoIQ Acquisition Corp. (NASDAQ: VTIQ) was formed for the purpose to acquire one and more businesses and assets, through merger, capital stock exchange, asset acquisition, stock purchase and reorganization. Recently, VectoIQ Acquisition and Nikola Corporation entered into a Business Combination Agreement, under which VTIQ will be merged with Nikola, a leader in the design and development of BEV and FCEV class 8 semi-trucks. Post the merger,Nikola will become a wholly-owned direct subsidiary of VectoIQ. Notably, VectoIQ is holding a special meeting of its stockholders to obtain their approval necessary to complete the Business Combination. Post the deal, the merged entity will be called “Nikola Corporation” and is expected to be listed on NASDAQ under “NKLA” ticker.
 
Digging into the Details: In the current course of action, VTIQ reminds shareholders to vote in favor of the concerned merger. Moreover, the company’s shareholders plan to vote at the company’s special meeting related to the proposed merger is scheduled on June 2, 2020.Additionally, VectoIQ has released 23.9 million warrants which enable the holder to acquire one common share of VectoIQ at a price of $11.50 per share. The warrants will become exercisable 30 days after the conclusion of the business combination with Nikola. The issue of warrants may result in additional cash proceeds of up to $275 million for the company.
 
It is to be noted that, Nikola intends to use the proceeds to hasten its battery-electric portfolio and hydrogen fuel-cell electric vehicles (FCEV) aiming for zero emissions worldwide. Moreover, the company will add VectoIQ’s current CEO, Stephen Girsky, to its Board of Directors. Below is the selected historical consolidated financial data for the years ended December 31, 2017, 2018 and 2019, derived from Nikola’s audited consolidated financial statements:
 

 
With the completion of merger, Trevor Milton will chair the new company. Current Nikola president Mark Russell will become its CEO.
 
Certain Lock-up restrictions: Securities of the Company held by the Holders will be locked-up for a specific period of time following the Closing, subject to certain exceptions. The securities held by the Original Holders will be locked-up for one year following the Closing, subject to earlier release if (i) the reported last sale price of the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing or (ii) if the Company (VTIQ) consummates a liquidation, merger, stock exchange or other similar transaction after the Closing which results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. The securities held by the New Holders, other than certain entities controlled by Trevor Milton, the current Chief Executive Officer of Nikola, will be locked-up for 180 days after the Closing. The securities held by certain entities controlled by Trevor Milton will be locked up for one year following the Closing, except that they would be permitted to sell or otherwise transfer an aggregate of $70.0 million shares of the Company’s common stock commencing 180 days after the Closing.
 
Stock Details: The stock of VTIQ closed at $27.5 with a market capitalization of ~$815.1 million. The stock made a 52-week low and high of $9.92 and $35.38, respectively. The stock of the company went up by 97.84% in the past one-month period.As a result of the Business Combination, every outstanding share of Nikola Common Stock will be withdrawn and converted into the right to receive 1.901 shares of VectoIQ’ common stock, at the closing price. Notably, the completion of the proposed merger is subject to VectoIQ and Nikola shareholders’ approval and other closing conditions. The transaction is expected to be completed in 2QFY20.
 
While taking any investment decision, investors should consider the risks and difficulties, the new entity will face being an early stage company with limited operational history. Absence of any immediate revenue generation, managing cash and business activities with a capital-intensive profile, delivering orders in time remain key concerns to watch out. The new entity aims to obtain major part of its revenue from the sale and lease of the Nikola vehicle platforms which are in a nascent stage of development. The company do not expect its hydrogen fueling stations to be operational until 2022 or beyond. Hence, we believe that investors need to have a cautious approach in terms of considering the stock in the portfolio. With the given limitations but decent prospects of the industry, investors with high risk-appetite may watch the space. The stock closed at $27.5, down 3.95% on 28 May 2020.
 
VTIQ Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 

Alcoa Corporation

 

AA Details
 
Sneak Peek at AA’s First Quarter of FY20: Alcoa Corporation (NYSE: AA) is a worldwide industry leader in alumina, bauxite, as well as aluminum products. During the quarter, AA reported revenues of $2,381 million, down from $2,719 million reported in the year-ago quarter. Adjusted loss per share for the period came in at $0.23 per share, flat on a year over year basis.  Net income for the quarter stood at $80 million, as compared to a net loss $199 million in the year-ago period. EBITDA for the quarter stood at $321 million (excluding special items), down 7% quarter over quarter, due to lower prices, product mix, and volume, or higher production costs. Notably, 1QFY20 result includes the net positive impact of $122 million of special items, specially from the gain from the sale of the waste treatment capability in Gum Springs, Arkansas.
 

1QFY20 Key Highlight (Source: Company Report)
 
Balance Sheet Details: At the end of 31 March 2020, the company had a cash balance of $829 million, as compared to $879 million as at 31 December 2019. Total current assets at the end of the period came in at $3,333 million. Long-termdebt for the period amounted to $1,801 million. During the quarter cash used for operations amounted to $90 million, whereas, cash used for financing activities stood at $44 million.
 
What to Expect: In FY20, the company expects Aluminum segment shipments to be between 2.9 and 3.0 million metric tons per annum. Further, it expectstotal annual bauxite shipments to be in the range of 48.0 and 49.0 million dry metric tons. The company plans to deliver ~$700 million in 2020 through savings or deferrals, in order to address the economic uncertainty caused by the coronavirus pandemic. The company is reducing ~100 million of non-critical capital expenditure amid COVID-19 related corrective measures in FY20.
 
Stock Recommendation: The stock of AA closed at $9.48 with a market capitalization of $1.76 billion. The stock is trading at the lower band of its 52-week trading range of $5.16 to $24.63. The stock of the company went down by 31.65% in the past three months but went up 20.92% in the past one month. Debt to equity multiple in Mar’20 stood at 0.42x. The company has taken necessary measures to stay afloat amid-COVID-19 pandemic, by implementing new operating model and introducing processes to sell non-core assets, along with lower production costs and lessening working capital requirement. On the valuation front, the stock is trading at an EV/Sales multiple of 0.4x as compared to the industry median of 2x on TTM (Trailing Twelve Months) basis. Considering the above factors, we recommend a “Speculative Buy” rating on the stock at the closing price of $9.48 per share, down 2.87% on 28 May 2020.

 
AA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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