Eight Capital comments on E Inc’s delisting

The recent delisting announcement from online automotive marketplace E Automotive (E Automotive Stock Quote, Charts, News, Analysts, Financials TSX:EINC) seems like the right move, according to Eight Capital analyst Christian Sgro, who reported on the event in a Tuesday update. 

E Automotive, which has a digital platform for dealerships to access a wholesale auction marketplace for buying and selling vehicles to other dealers, announced on Monday that company shareholders have approved the voluntary delisting of its shares from the Toronto Stock Exchange, effecting on or about May 24, 2023. 

The company said maintaining its listing was not benefitting the company and shareholders, citing costs associated with having shares listed on an exchange as well as what it called the significant changes to E Inc’s institutional shareholder base since its IPO. E Inc said over 90 per cent of initial investors were institutional in nature but that as economic and market conditions deteriorated, with about 95 per cent of those original institutional investors now having sold their positions.

The company also pointed to the “extremely limited” trading volumes and small public float as problems for EINC, where about 90 per cent of shares are currently held by management, company directors and employees.

At the same time, E Inc has left the door open for a possible public re-listing down the road.

“The Company has decided to delist from the TSX after concluding that maintaining the listing does not offer substantial benefits to the Company and its shareholders. The Company will, however, remain a ‘reporting issuer’ under applicable Canadian securities laws and continue to provide regular comprehensive disclosure, providing the Company with the flexibility to potentially return to the TSX or a U.S. exchange in the future in a cost effective manner,” E Inc said in a press release.

E Inc, which completed its IPO in November, 2021, has seen its share price go from an initial $26.00 to under $4.00 by the end of 2022. So far in 2023, the stock is down about 17 per cent.

In response to the announcement, Sgro has moved his rating on EINC from “Neutral” to “Under Review” and removed his target price, which previously stood at C$5.75.

Sgro noted that E Inc’s board has approved a Substantial Issuer Bid of up to C$7.5 million at a price of C$3.50 per share, which represented a premium to Monday’s close of C$3.01 per share.

“We agree with the company’s assessment that the public listing currently does not provide significant benefits to the company and its shareholders,” Sgro wrote.

“The company has announced a Substantial Issuer Bid at C$3.50/sh, a premium to last night’s close, offering liquidity to shareholders interested in selling. Alternatively, shareholders can hold shares of EINC to participate in potential future upside resulting from a take-out or public listing,” he said.