Will NGCA SPAC Stock Be Like XOS or SPCE After Virgin Orbit Merger?

Billionaire Sir Richard Branson's Virgin Orbit is going public through a SPAC merger with NextGen Acquisition II (NGCA). The deal, which gives Virgin Orbit an implied proforma equity value of approximately $3.7 billion, is expected to close by the end of 2021. Is NGCA a good buy before the Virgin Orbit merger?

Virgin Orbit launches its rockets using a modified Boeing 747 aircraft—a technique known as air launch. Instead of launching rockets from the ground, like rivals Astra or Rocket Lab, Virgin Orbit’s aircraft carries its LauncherOne rockets to nearly 45,000 feet altitude and releases them just before the engine ignites and accelerates into space.

The business combination has been unanimously approved by NGCA's and Virgin Orbit's board of directors. While both companies expect the transaction to close by the end of 2021, a definite date hasn't been revealed. After the deal closes, Virgin Orbit stock will trade under the ticker symbol “VORB” on NASDAQ and replace NGCA stock.

As part of its merger with NGCA, Virgin Orbit will receive about $383 million in cash held by NGCA in trust and $100 million in PIPE (private investment in public equity) at $10 per share. Boeing and AE Industrial Partners participated as PIPE investors.

Since no analysts cover Virgin Orbit stock, we have to rely on projections provided by the company. Virgin Orbit expects to post revenues of $15 million in 2021, which it expects to gradually rise to $331 million in 2023 and $1.55 billion in 2025. The company also expects to achieve breakeven EBITDA in 2024. In 2025, Virgin Orbit forecasts its EBITDA rising to $504 million and expects an EBITDA margin of 32 percent.

The NGCA SPAC had its IPO in March 2021 and it raised $350 million. It's the second blank-check company co-led by George Mattson and Gregory Summe. The team’s first SPAC, NextGen Acquisition (NGAC) took commercial EV manufacturer Xos (XOS) public on Aug. 20. XOS stock fell 14.5 percent on its debut as investors questioned the company’s valuations and its ability to meet its projections.

Virgin Orbit is a spinoff of Branson’s space tourism company Virgin Galactic (SPCE). SPCE stock has lost nearly 50 percent since Branson flew to space last month. However, the stock is still up nearly 150 percent from its SPAC IPO price of $10. SPCE stock also rose nearly 5 percent on its stock market debut.

Although investors have shifted away from growth stocks and SPACs over the last few months, Virgin Orbit stock is set to surge after going public. Virgin Orbit's management team looks solid with an impressive track record.

NGCA has assigned Virgin Orbit a proforma implied equity value of $3.66 billion and an enterprise value (EV) of $3.2 billion. This would give us a 2025 EV-to-sales multiple of 2.1x and an EV-to-EBITDA multiple of 6.3x. Considering that peers Rocket Lab and Astra are trading at 2025 EV-to-sales multiples of 5.8x and 2.3x, respectively, Virgin Orbit stock looks undervalued and worth considering.

With three launches in only 13 months and a 100 percent success rate on revenue-generating missions, Virgin Orbit has quickly transitioned into successful commercial operations. The company has roughly $4 billion in opportunities in the pipeline, with a backlog of $300 million across contract and launch service agreements. In 2020, Virgin Orbit was awarded a $35 million contract from the U.S. Space Force for three missions.