Tuscan Holdings Is Worth Significantly More In its Merger with Microvast

Tuscan Holdings (NASDAQ:THCB), a special purpose acquisition company (SPAC) with an agreed merger with Microvast, a battery storage company, looks undervalued here. My estimate is that THCB stock is worth at least 26% to 80% more than its present price. This article will describe how I came up with that figure.

On Feb. 1, Tuscan and Microvast closed a definitive agreement on their prospective reverse merger. However, they did not produce a press release describing the details. They only issued a slide presentation and all the legal documents in the SEC filings.

The battery maker has some considerable forecasts. On page 20 of its slide presentation, Microvast projects that it will grow revenue quickly over the next 6 or 7 years.

For example, from $101 million in 2020 in estimated sales, Microvast expects 2021 revenue will grow 128% to $230 million. In fact, on average the revenue will grow 87.6% annually on a compound basis for the five years from 2020 to 2025. By 2025 it is forecast to hit $2.348 billion.

Moreover, the same thing occurs with its projected adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). From $12 million forecast in 2021 (losses in 2020) to $465 million by 2025, the average annual compound growth rate (CAGR) is 149%.

However, we have to discount these projections by the time value of money. The reason is that these projections are five to six years in the future. Investors have alternative uses for that money. So the opportunity cost plus all the risks associated with these forecasts suggest making an adjustment.

For example, using a 15% discount rate, the 2025 revenue figures drop by about half to $1.167 billion. The same for the adjusted EBITDA number. We can use these in the valuation of THCB stock.

Valuing Microvast Using Projections

The slide presentation indicates on page 4, footnote 4, that there will be 300.5 million shares once the merger closes. Therefore, at a price of $16.86, the pro forma market cap is $4.994 billion.

In addition, the company expects to pick up $800 million on a net basis at the close. Therefore, the pro forma enterprise value (EV) is $4.194 billion.

This implies that the 2025 EV-to-revenue multiple is just 1.8 times (i.e., $4.19 billion divided by $2.25 billion). Even using the time discount factor, the adjusted EV-to-sales ratio is 3.6 times.

However, Tuscan Holdings goes a step further for us. The slide presentation shows that the comparable group of companies in its industry have a higher valuation. For example, on page 24 of the slide presentation, Tuscan indicates the median EV-to-sale multiple is 4.7 times. This includes companies like Quantumscape (NYSE:QS), and Romeo Power (NYSE:RMO), both of which were in SPAC deals themselves. It also includes Ballard Power (NASDAQ:BLDP), Plug Power (NASDAQ:PLUG), and a number of electric vehicle stocks.

Based on this comp valuation of 4.7 times 2025 revenue, THCB’s EV is worth $5.486 billion (i.e., 4.7 times its adjusted revenue of $1.167 billion (see above). After adding back the $800 million in cash the target equity value is $6.287 billion. This works out to $20.92, as there will be 300.5 million shares outstanding.

On an unadjusted basis, the valuation is as high as $11.8 billion, or $39.39 per share. Therefore, the mid-price between these two is $30.15. This represents a potential gain of 81% above today’s price.

What To Do With THCB Stock

Microvast, the electric battery storage company, is worth considerably more than its present price. We can reasonably say its value is at least $20.92 to $39.39 per share or $30.15 per share in the middle of this range.

Recently the company received some really good news. One of its clients, Oshkosh Corp. (NYSE:OSK) received news that it won a U.S. Postal Service contract to modernize its fleet. Some of these trucks will have battery storage with Microvast. Look for THCB stock to continue to move higher, especially as the reverse merger inches closer.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.