E Inc has a 165 per cent upside, says ATB

ATB Capital Markets analyst Martin Toner gave the thumbs up to the latest move from E Inc (E Inc Stock Quote, Charts, News, Analysts, Financials TSX:EINC) in a recent update to clients. Toner reiterated an “Outperform” rating while maintaining a target price of $12.50 per share, good for a projected one-year return of 165 per cent.

Car auction platform company E Inc (formerly E Automotive) announced on January 26 a definitive agreement to acquire independent auction marketplace Houston Auto Auction in a $5.5 million deal, with $2.5 million payable on closing and the remainder split equally over the first and second anniversaries of the deal closing (expected by February 1, 2023).

E Inc said Houston Auto, a physical auction specializing in fleet sales, is its first asset in Texas, which has the second-largest vehicle resale market in the US.

“This acquisition, together with our Louisiana asset, ties together two strategic local markets in the Gulf State region as we continue to build scale and strengthen our footprint in the area,” said Jason McClenahan, President and CEO of E Inc, in a press release.

E Inc also provided a business update, saying it was changing its plans as far as M&A goes. The company had announced on November 8, 2022, that it would be acquiring multiple automotive businesses as part of its “land-meets-tech” strategy of buying up profitable physical auction assets and integrating them with its digital wholesale platform but that the push for more physical assets would now be put on hold.

“Due to macro economic pressures on the automotive market, E INC has determined it will no longer pursue the remaining Proposed Acquisitions on the previously disclosed terms at this time. The Company will remain disciplined with respect to valuations in the current market. E INC will continue to evaluate the Proposed Acquisitions and pursue additional physical auction acquisition opportunities that it believes strengthen its U.S. presence,” the company statement read in the press release.

On the latter, Toner said in his January 26 note, “We believe this pause is a disciplined approach to acquisitions and not a change in strategy.”

Toner expects E Inc’s cost reduction measures will lower its losses going forward, adding that the company raised $20.3 million in equity over the fourth quarter 2022 and had finished the third quarter 2022 with $19.6 million in cash. For E Inc’s upcoming fourth quarter earnings, expected in early March, Toner has forecasted an adjusted EBITDA loss of $10.4 million.