Tortoise Acquisition Corp

SHLL Details

Hyliion Inks Deal with Dana: Tortoise Acquisition Corp (NYSE: SHLL) is a unique purpose acquisition company, which focuses on acquiring one or more businesses and assets, through a merger, asset acquisition, capital stock exchange, stock purchase or reorganization. On August 19, 2020, Hyliion Inc. and Dana Incorporated together unveiled a national program with Idealease to display Hyliion’s Hybrid Diesel Powertrain to Idealease customers.

Hyliion Proposed Merger With SHLL: On June 19, 2020, Hyliion Inc. revealed its plans to merge with Tortoise Acquisition. Post the deal, the merged entity will be named “Hyliion Holdings Corp.” and the stock will remain listed on NYSE under the new ticker “HYLN”. Following the merger announcement, Hyliion Inc. stated that Andrew (Andy) H. Card Jr. will be appointed on the board of directors of the merged entity. 

Digging into the Details: The combined company is expected to have a pro forma market capitalization of more than $1.5 billion. From an upsized $325 million PIPE, the company will receive ~$560 million. Proceeds from the merger deal will be utilized for operational expansion, product commercialization, & for general corporate purposes. Notably, both the companies’ board of directors unanimously approved the transaction. In the newly formed entity, Thomas Healy will continue with his role as Chief Executing Officer and will be joined by Tortoise’s Vince Cubbage and Stephen Pang. SHLL’s strong network of industry partners is likely to expand Hyliion’s business growth and support advancement and commercialization of its powertrain solutions. The move will help the combined entity to implement an electrified trucking solution to curb the emissions and make a cleaner energy future. 

Stock Details: The stock of SHLL closed at $40 with a market capitalization of ~$1.17 billion. The stock made a 52-week low and high of $9.5 and $40.38, respectively. The stock of the company went up by 122.59% in the past one-month period and 303.23% in the last three months period. Notably, the closing of the deal is subject to customary closing conditions. The transaction is expected to be finalized at the end of 3QFY20.

While taking any investment decision, investors should consider the risks and difficulties the new entity might 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 and delivering orders in time, remain key areas to watch out. The new entity aims to obtain a major part of its revenue from the Hyliion’s technology solutions that transform transportation’s environmental impact, which is in a nascent stage of development. The company’s merger with Hyliion, will support the latter to strengthen its foothold in the electrification of class 8 commercial vehicles market. Hence, we suggest investors to remain cautious to include the stock in the portfolio. Considering the aforesaid limitations, decent prospects of the industry, stock price appreciation, etc., investors with high risk-appetite may watch this stock. The stock closed at $40, up 33.73% on 24 August 2020. 

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

Occidental Petroleum Corporation

OXY Details

OXY to Sell $1.33Bn of Assets: Occidental Petroleum Corporation (NYSE: OXY) is an integrated oil and gas company, which is engaged in exploration and production activities. The company is also involved in producing basic chemicals, petrochemicals, polymers, and specialty chemicals. On August 19, 2020, the company stated that it has inked a deal with Orion Mine Finance (Orion) to divest its Wyoming, Colorado, and Utah Land Grant assets for a consideration of $1.33 billion. This deal is likely to close in 4QFY20 and consists of OXY’s 4.5 million mineral acres and 1 million fee surface acres. This move to divest its assets will aid the company to meet the $2 billion non-core asset divestment goal set for 2020. The net proceeds from the deal will help the company to meet debt obligations and fund growth projects.

2QFY20 Key Highlights: During the quarter, the company reported a loss of $1.76 per share as compared to earnings of 97 cents per share reported in the prior corresponding period. Total revenues for the quarter declined 33.5% year over year and came in at $2,976 million due to lower contributions from all segments. During the quarter, the company was adversely impacted by a sharp decline in oil prices. Crude oil hedges offered some support to the company in the midst of the falling commodity prices. The company ended the quarter with a cash balance of $1,011 million, with long-term debt (net of current portion) amounting to $36,034 million. The increase in debt level was due to the loan taken by the company to fund the Anadarko acquisition. Cash flow from operations in 2QFY20 stood at $365 million, with total capital expenditure amounting to $375 million.

Key Highlights (Source: Company Reports)

Outlook: For 3QFY20, OXY expects production to be between 1,200-1,250 Mboe/d and Permian Resource production in the range of 392-408 Mboe/d. FY20 production is expected to be between 1,300-1,330 Mboe/d and Permian Resource production within 421-431 Mboe/d. For 3QFY20 and FY20, exploration expenses are expected to be $25 million and $120 million, respectively.

Key Risks: The company’s financial performance has shown tepid results due to a decline in oil demand. The company has been impacted by an unprecedented drop in commodity prices. Further, a drop in the demand for hydrocarbons due to the pandemic will remain a potential headwind, going forward. Stiff competition and a leveraged balance sheet add to the woes. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months.

Stock Recommendation: The stock of OXY closed at $13.62 with a market capitalization of $12.67 billion. The stock made a 52-week low and high of $9 and $48.85 and is currently trading close to its 52-week low. The stock has delivered a negative return of ~18.64% in the past one month. The company remains on track to manage its cost and expenditure. Considering the above factors, we have valued the stock using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). Considering the above factors, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the closing price of $13.62, up 3.5% on 24 August 2020. 

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

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