XL Fleet Corp

XL Fleet Corp (NYSE: XL) is an industry leader in fleet electrification solutions, with proven, proprietary technology and electrification systems and solutions that work across a wide range of vehicle classes and types.

Key Highlights

• Merged with Pivotal Investment Corporation II: The company announced that it has completed its previously announced merger with Pivotal Investment Corporation II and this transaction resulted in the combined company being renamed “XL Fleet Corp”. We have closed the position on the delisted entity- Pivotal Investment Corporation II at the closing price of $21.20 on its last trading day on 21 December 2020. In connection with the merger, XL Fleet received approximately USD350 million in cash proceeds. We believe the funds would be used to advance its position as a leader in fleet electrification through the development of new products.

• Accomplishing Strong Customer Demand: The company has recently expanded its electrification solutions portfolio to ford f-550 chassis to meet strong customer demand. The new system was developed and brought to market within six months to meet a significant and growing commercial fleet demand for the electrified F-550 chassis, for applications including municipal transportation, utilities, construction equipment and customer service vehicles. We believe it showcases the Company’s ability to quickly bring new electrification products to market when customer demand warrants it.

• Growth Projections: The company is on a low-risk path to achieve a huge growth through selling its existing products to existing customers through its existing channels. This has accelerated its unit sales, supported by robust pipeline. For FY2020, the company expects its revenue to grow by 192% to USD 21 million incurring a negative EBUTDA of USD 9.9 million. From 2019 to 2024, the company expects a significant improvement in its revenue and EBITDA.

Source: Company

Financial overview of Q3 2020 in USD

*(These numbers are of Pivotal Investment Corporation II)

Source: Company

• In Q3 2020 the company posted an operating loss of USD 1.87 million, compared to an operating loss of USD 0.13 million in the previous corresponding period.
• Net loss stood at USD 1.82 million in the reported quarter, against net profit of USD 0.66 million in Q3 2019.

Risks associated with investment

The company is exposed to the risk related to the growth of the company, as at present they are hardly making any revenues, although the Company expects a revenue of USD 281 million in FY22. Any derail from their future expected financials could harm them. 

Stock recommendation

Recently the company completed its merger with Pivotal Investment Corporation II and had received approximately USD350 million in cash proceeds. The funds would be used to advance its position as a leader in fleet electrification through the development of new products, which would help it in generating revenues. Furthermore, the company expanded its electrification solutions portfolio to ford f-550 chassis to meet strong customer demand. The new system was developed and brought to market within six months which is quite impressive. On the valuation front, the stock is available at TTM P/BV multiple of 2.7x against the Industry mean of 3.1x. Hence, considering the aforesaid rationale, we recommend a “Hold” rating to the stock at the closing price of USD 21.24 on January 8, 2021, considering the expected improvement in the Company’s revenue and EBITDA over the coming years.

Source: Refinitiv (Thomson Reuters)

Opendoor Technologies Inc

Opendoor Technologies Inc (NASDAQ: OPEN) is a digital platform used for residential real estate, which enables the customers to purchase and sell houses online. The group generates revenue through home sales, along with other revenue from real estate services.

Key Updates:

• Merger with Social Capital Hedosophia Holdings Corp: Recently, the company completed its merger with Social Capital Hedosophia II (NYSE: IPOB), a special-purpose acquisition company focus on identifying and investing in innovative and agile technology companies. After the merger, each of the outstanding IPOB Class A ordinary shares converted into a share of common stock, par value USD 0.0001 per share, of Opendoor Technologies.
• Strong Performance: The company reported a strong growth in its revenue in the recent past, backed up by higher homes sales. Home sales grew from 3,127 units in FY17 to 18,799 units in FY19, reflecting a CAGR of ~145%, which indicates strong traction backed up by higher sales conversion, which is a key positive. Revenue, on the other hand, recorded a CAGR ~159% during the same time frame.                         

Source: Company Presentation

• Improved Outlook: As per the revised outlook, the management expects total home sales of 9,750 units to 9,673 units of its earlier guidance. Moreover, adjusted gross profit and gross profit margins are expected at USD 190 million and 7.6%, respectively, from its earlier guidance of USD 172 million and 7%, respectively.

Source: Company Presentation

Q3FY20 Financial Highlights:

• OPEN announced its quarterly results, wherein the company posted total revenue of USD 339 million, as compared to USD 1,211 million in the previous corresponding period (pcp). The decline was majorly attributable to lower home sold (1,232 units versus 4,783 units in pcp).
• Adjusted EBITDA loss stood at USD 21 million, down significantly from USD 53 million in pcp.
• Adjusted Gross Profit was recorded at USD 33 million, as compared to USD 80 million in Q3FY19.
• The company reported cash and cash equivalents of USD 469.365 million, while total assets were posted USD 1,049.167 million.

Source: Company Presentation

Risks: Digital technology provider companies are prone to several threats such as entry of new players, price competition, market saturation etc.

Valuation Methodology (Illustrative): EV to Sales

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The group reported operating cash flows of USD 1,037.354 million during 9M FY20, as compared to a loss of USD 312.779 million, a year ago. The company expects a strong financial growth in next three years, while the company would scale its capacity and would focus on reducing its costs, which would support the company’s margins as well. The company expects its penetration across high margin services, which would further support the company’s margin and profitability. The stock of OPEN soared ~133%. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a single-digit downside (in percentage terms). For the said purposes, we have considered peers like IAC/Interactivecorp, ANGI Homeservices Inc and GoDaddy Inc etc. Hence, considering the aforementioned facts, we recommend an ‘Expensive’ rating on the stock at the closing price of USD 26.79 as on January 08, 2021 and wait for the better entry point.

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

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