What’s the “Small $14 SPAC” being teased by Ian King’s New Era Fortunes?

What's the hinted at new recommendation, a "small, private firm that makes navigational chips for autonomous vehicles?"

By Travis Johnson, Stock Gumshoe, December 10, 2020

I’ve recently gotten a bunch of questions about an ad that’s actually dated October, 2020… so it’s a little bit of a dated pitch for Ian King’s New Era Fortunes ($1,950/yr, no refunds), which I haven’t covered yet….

But today, it’s being pitched with a new intro from Banyan Hill that promotes a current recommendation, what they say will be Ian King’s eighth recommendation in this newsletter… so let’s take a look and see if we can figure out what that will be, shall we?

These are the criteria he says he’s generally looking for, taken from the full ad:

“What I’m looking for is a company with a line of business that’s underpriced by investors.

“Ideally, a new business venture that Wall Street is overlooking but has the potential to disrupt an entire industry….

“I want to see that sales are increasing at least 20% or more year over year.

“That’s because sales are numbers that can’t be manipulated.

“Find a company with sales going up at a 20% annual clip, and its sales will double in five years…”

And some other items from the checklist in that October ad:

“I want to find a small stock at the forefront of a tipping-point trend in an industry that is positioned to grow by 100% or more in the next five years.

“I want it to have a lot of patents in place protecting its products.

“It has to be an innovative company that’s solving a huge problem.

“It has to be listed on a major exchange.

“Its gross margins need to be stellar and consistently growing.

“It must have a large and growing distribution network.

“These are just a few of the characteristics I’m looking for with every potential recommendation I’ll make in the new venture I’m launching today.”

And here’s what was hinted at in the emails from Banyan Hill that I received yesterday… so we don’t know which day King’s next recommendation might be released, but it’s apparently “soon” …

“Six of the seven recommendations in my colleague Ian King’s small-cap service New Era Fortunes are up 40% or more in just 33 days… Gaining as much as 110% more. And Ian is about to release his eighth recommendation.”

It’s been a good year to introduce a new newsletter, that’s for sure — growth out the wazoo, as we used to say. So whatever will that eighth recommendation be?

These are our hints… it’s a SPAC, which seems to make everyone’s heart go pitter-pat this year:

“It involves a small, private firm that makes navigational chips for autonomous vehicles … a leader in a potential $200 billion market. And its revenues are expected to surge 176 times by 2025….

“Shares of the SPAC are trading for just $14 right now.

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“But Ian doesn’t think they will stay anywhere near there for long.”

So… hoodat? We’re in the somewhat shocking position now of having at least three new LiDAR names come public through SPACs in a single year, not bad for a technology that Elon Musk himself has often written off as “doomed,” but which one is this?

Thinkolator sez that King is very likely to be teasing Aeva, which made an agreement about a month ago to be acquired by the SPAC InterPrivate Acquisition Corp (IPV), a deal that will likely be closed in the first quarter of 2021 (nothing is guaranteed, of course, it’s been an extraordinary year for SPAC deals, and most of them go through thanks to the heady incentives all parties have to consummate these deals, but they do occasionally fail or face delays).

The November investor presentation to announce and promote the deal, Aeva’s leaders came from the consumer tech world (Apple and Nikon) and they have been developing their “4D LiDAR” product for just three years, with a couple prototype models developed and some partnerships with automotive industry leaders… and, this year, a production partnership with ZF, a large German auto supplier, to produce their LiDAR components at scale. Eventually.

And if you want an indication of why a SPAC is targeting a LiDAR company, you need look only as far as the last two LiDAR companies to go public through SPAC mergers… Luminar (LAZR) and Velodyne Lidar (VLDR), this is what those stocks have done in the past few months as those SPAC mergers have been consummated:

VLDR Chart

Like with other Lidar names, it’s likely that meaningful auto industry revenue for Aeva is at least four or five years away — like LAZR and VLDR and some other “next generation auto supplier” companies in batteries, the presentation highlights valuations based on 2025 numbers that are possible according to their “memorandums of understanding” with early partners, but, of course, far from guaranteed — none of these products are really in production, or even designed into near-production vehicles, so a lot could change in the next four or five years (it could get better, too, of course, that doesn’t necessarily mean their prospects will get worse). In Aeva’s case, at $14 they have an implied enterprise value, assuming the SPAC merger goes through, of about $2.5 billion, and they say that represents not much more than 2-3X their estimated 2025 revenue, and 5-6X their expected 2025 EBITDA.

If they hit that, then this is a rational investment. The leading chip suppliers for automobiles right now, large companies like NXP Semiconductors (NXPI) and Infineon (IFNNF) that also do a lot in other industries, trade at about 5X sales, and more embedded electronics-focused automotive-only suppliers like Aptiv (APTV) trade at about 2.5X sales, just for some context. None of them are growing as much as the LiDAR startups expect to grow in their early years, so it’s anyone’s guess whether or not that first initial burst of growth from their first products in 2023-2025 or so will impact the share prices… but what matters more in the short term, most likely, is whether or not these ideas become hot “stories” — Velodyne Lidar (VLDR) is the most established “pure play” LiDAR company to have come public, with a fairly steady current business and market leadership, but it hasn’t been the hottest “story” — that goes to Luminar (LAZR) because of its “something different” technology, it’s young founder, and the connection to Peter Thiel.

It’s hard to know what will ignite investor imaginations — the investor narrative these days seems to me to be that VLDR is closer to being a rational investment, LAZR is the more exciting “disruptor” … where will Aeva fit into that?

Here’s what Techcrunch says is the difference-maker for Aeva:

“Aeva’s founders Soroush Salehian and Mina Rezk have developed what they call ‘4D LiDAR,’ which can measure distance as well as instant velocity without losing range, all while preventing interference from the sun or other sensors. The company’s FMCW technology also uses less power, allowing it to fold in perception software. While the company’s technology has been primarily developed for use in autonomous vehicles as well as advanced driving assistance systems, Salehian says its technology is also piquing the interest of those in consumer electronics.”

They have some initial backing from Porsche SE (owner of Volkswagen, Audi, Porsche, and many more brands), which is encouraging but not particularly unique in the space — lots of LiDAR and other autonomous vehicle tech startups have received what is essentially venture capital R&D investment from carmakers, who are always trying to push technology advancement at relatively low cost. That guarantees them a big potential customer will pick up the phone and help them with R&D, but it doesn’t, of course, guarantee that their particular technology will end up in a fleet of new cars in the next few years. A lot of these technologies have been simmering on the back burner for decades, and often take a long time (for some investors, a shockingly long time) to become commercially viable… especially in an industry like automobiles, where the product development cycle is very extended and the life-and-death importance of reliability and durability is far higher than in the consumer electronics business where a lot of these new technologies are born.

Porsche is also participating in the PIPE offering that is part of the SPAC deal, investing more capital at $10 a share — participating in a SPAC PIPE for anything that has any excitement to it story at all has been essentially “free money” for connected institutional investors this year, so not at all a surprise that they’re on board with that deal. Altogether, it ends up being a capital raise for Aeva of about $350 million if nobody redeems their SPAC shares when the deal goes through, I don’t know if that will be enough to get them to commercial production but it’s certainly a good start.

And where it goes from here, well, I don’t know. Yes, the revenue are “expected to surge 176 times by 2025” if the company meets its projections, but that doesn’t really mean anything when you’re effectively starting from zero and investors are already buying this based on that five-years-away future today — numbers like that are being counted on by current investors, they wouldn’t be an exciting surprise.

I’d guess that this name will be more exciting for investors than VLDR, but will their story be taken up as sexy like LAZR? Speculators will decide that over the coming months. And you, of course, get to make up your own mind — ready for a ride on Aeva through this latest LiDAR-focused SPAC? Think it’s too unpredictable? Confident in their 2025 goals and ready to be patient, or interested in betting on a possible “story” surge in the shares over a few months? Let us know with a comment below.

P.S. And yes, like essentially all SPACs, InterPrivate Acquisition does also have warrants trading — a few of the initial SPAC units (IPVU or IPV/U) still exist and trade occasionally, with each unit consisting of one share and one half of one warrant, but most of the trading is in the split off equity (IPV) and in the separately-traded warrants (IPVW or IPV/WS). Like with most SPACs, the warrants have a five-year term (from the deal consummation date), a strike price of $11.50, and a “early redemption” trigger (though theirs is at $18.50, not the more typical $18).


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ytse
Irregular
ytse
December 10, 2020 11:52 am

Dear Travis,
I did very well by unloading all my LAZR-WT.
Now I am just keeping my eyes on this SBE-WT. I will unload them too in the right time.

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Kss
Irregular
Kss
December 10, 2020 5:54 pm

So this is not switchback energy? What is the difference between SBE, SBE-WT and SBE-UN?

Is it too late to get into SBR, LAZR or VLDR?

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Last edited 4 months ago by kss007