The stock is still a buy but in an update to clients on Friday Laurentian Bank Securities analyst Nauman Satti has lowered his target on Exro Technologies (Exro Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:EXRO).
Calgary-based Exro develops and commercializes a patented coil driver technology and proprietary system architecture for power electronics, namely its Coil Driver, which expands the capabilities of electric motors, generators, and batteries. It also develops the battery control system that expands the capabilities of batteries by enabling a greater depth of control on the cells.
Satti’s analysis comes after Exro closed on a $20.4 million subscription bought deal, valued at $1.60/share, thereby diluting Exro’s value.
The equity raise came at the same time as a legal brush the company is currently dealing with, which has taken the stock price down 40 per cent since the matter was first brought forward in late January.
“Exro’s equity raise coincided with a patent infringement claim by ePropelled which in our opinion caused shareholder dilution at a substantially lower price, albeit the financing provides operational stability and takes care of near-term liquidity needs,” Satti said.
The source of the legal strife for Exro is ePropelled, an electronics manufacturer based in Lowell, Mass., who claim to have patented the coil switching technology which moves between parallel and series mode to efficiently utilize power and torque, that Exro’s motor technology uses.
The legal challenge only added more pressure to Exro’s share price after a drop from $2.27/share to $1.67/share, as January produced an overall sell-off in the tech sector.
Exro management believes the patent infringement lawsuit, which is in its preliminary stages and could stretch over multiple quarters, is unmerited and that the company “will defend itself vigorously,” Exro said in a press release.
Satti said a worst case scenario for Exro would be a penalty or an out of court settlement, though patent infringement cases still present the risk of Exro having to pay a settlement payout or court fines and damages, while the ongoing litigation could provide an overhang.
However, Satti also notes the potential for an order to come from one of Exro’s partners, which could bring a boost to the company’s stock price in upcoming quarters.
“Despite the recent challenges, the two positive take-aways are that Exro’s technology is gathering enough traction and credibility that other players are taking note, and the recent investor interest in equity offering demonstrates confidence in the growth potential of the company,” Satti added.
Exro experienced a much more positive end to 2021, as the company announced an agreement with London-based Untitled Motorcycles, in which the two companies will collaborate to integrate Exro’s 100 Volt Coil Driver technology into Untitled’s limited edition XP Zero electric motorcycles.
“We are excited to partner with Untitled Motorcycles and expand our work in the electric motorcycle market,” said Sue Ozdemir, CEO of Exro in a December 30 press release. “The XP Zero is extraordinary in how it looks and performs, and our Coil Driver technology will elevate the XP’s performance even further. This was a huge year for electric motorcycle launches and we’re proud to contribute to the progress in the sector.”
Satti forecasts the company will bring in $8.2 million of revenue in the 2022 fiscal year after making its first profit in the final quarter of 2021 ($84,000), then projecting a 251 per cent year-over-year increase to $28.9 million in 2023, with another growth projection greater than a doubling in play for 2024 at $65.9 million (127.7 per cent year-over-year increase) before projecting $94.9 million and a year-over-year increase of 44.1 per cent for 2025.
In that same timeframe, Satti projects the company’s EV/Sales multiple to drop from 16.8x in 2022 to 1.5x by 2025.
Meanwhile, after estimating eight figure losses in 2021 through 2023, Satti projects Exro’s adjusted EBITDA will turn minimally positive in 2024 before breaking out at a projected $9.2 million in 2025 for an implied margin of 9.7 per cent. 2025 is also when Satti introduces an EV/EBITDA multiple projection, setting the bar at 15.1x.
“Valuing a pre-revenue company is challenging with substantial execution risks, hence we have a ‘Spec. Buy rating’, despite a large market opportunity for Exro,” Satti said. “Although the peer group (EV tech) trading multiples have declined on recent volatility, we have kept Exro’s multiple unchanged given its large growth opportunity.”
Exro’s share price has experienced a drop of 77.1 per cent over the last 12 months, but has dropped by 54.7 per cent since the start of 2022. Exro has had a rough start to February in hitting its 52-week low of $1.38/share on Thursday, a far cry from the 52-week high of $7.17/share on February 16. With the update, Satti has lowered his target price from $5.50/share to $5/share while maintaining a “Speculative Buy” rating which at press time represented a projected one-year return of 262 per cent.