E Automotive is heading back to $22, says Eight Capital

Online auto marketplace and retail company E Automotive Inc (E Automotive Stock Quote, Chart, News TSX:EINC) has dropped by a lot since its debut last November but Eight Capital analyst Christian Sgro remains excited about the company, maintaining a “Buy” rating and C$22/share target price for a projected one-year return of 175.7 per cent in an update to clients on Wednesday.

Founded in 2017 and headquartered in Toronto, E Automotive provides automotive dealers with access to an online wholesale auction marketplace and subscription solutions to support digital retailing and management, operating under the brands of EBlock, where dealerships are given access to an online auction that simulates the urgency of a live auction, and EDealer, a recurring subscription offering where dealers can track and showcase inventory to consumers, ultimately facilitating the sale of new and used vehicles.

Sgro’s latest update comes after E Automotive announced the acquisition of Louisiana’s 1st Choice Auto Auction (LAFCAA), a physical auction marketplace that accelerates stated plans to build out a presence in the US Southeast.

“In addition to being close to Florida and Alabama, LAFCAA connects with EINC’s operations in the West along the Gulf Coast,” Sgro said. “Over time, we expect volumes and processes to become increasingly digitized under the EBlock banner in a unified digital strategy  (for example, physical and digital lanes running side-by-side).”

In acquiring, LAFCAA, E INC is bringing in a 34-acre site located approximately 60 miles north of New Orleans and approximately 15,000 transactions processed annually through LAFCAA’s dealer-only auctions on Tuesdays, along with online bidding on a consignment of approximately 550 vehicles annually.

“The addition of physical auctions to our digital dealer-to-dealer platform is a natural extension of our commitment to supporting the evolving needs of our dealer partners,” said Jason McClenahan, President and CEO of E INC in a June 1 press release. “By connecting physical auctions and digital auctions, we are creating a network of logistics hubs that will improve our ability to serve our customers and give them the flexibility to do business where and how they prefer it.”

Though no official details of the transaction were released, Sgro’s assumption arrived at a value of $550/transaction, which translates to approximately $8 million, which he worked out to approximately $10 million in considerations (assumed to be all in cash) based on a revenue purchase price of between 1x and 1.5x. (All figures in US dollars excpet where noted otherwise.)

On the company’s recent quarterly earnings call, the company announced it had closed its most recent quarter with $79.8 million in cash, with the acquisition implying a pro forma $60 million to $70 million of cash post-acquisition, ignoring cash flows post quarter-end.

“We expect continued active investment in the business and select M&A to support EINC’s mission of having a coast-to-coast presence in the US by the end of 2023,” Sgro said.

E Automotive has seen its share price drop by 54.6 per cent since the start of 2022, dropping gradually since hitting an early peak of C$18.04/share on January 5. Last week saw the stock hit a low point for 2022, closing Friday at a price of C$7.75/share.