Will Indie Semiconductor Stock Get a Boost After THBR Merger?

Indie Semiconductor is an automotive chip and software company. It's scheduled to go public through a reverse merger with the SPAC Thunder Bridge Acquisition II (THBR). The shareholder vote is scheduled for June 9. What is Indie Semiconductor's stock forecast after the THBR merger?

Indie Semiconductor sells its products through leading auto parts suppliers like Magna International and Aptiv.

The merger will provide the combined company with cash proceeds of $495 million, which will be used by Indie to accelerate the deployment of solutions to existing customers. The transaction values the company at an equity value of $1.4 billion. The shareholder vote on the merger will take place on June 9 at 11:00 a.m. ET. If the merger is approved, the company will start trading under the ticker symbol "INDI" on Nasdaq.

Currently, two Wall Street analysts cover THBR. Both of the analysts have a buy rating for the stock. The analysts’ average 12-month target price for the stock is $18.5, which implies a potential upside of 82 percent. Benchmark and Roth Capital initiated coverage on the stock with buy ratings in March 2021.

The Roth Capital analyst sees a strong valuation opportunity in the stock since the company is positioned in the rapidly growing autotech market. The Benchmark analyst sees the automotive market as one of the key growth drivers for the semiconductor market.

The specialized supply chain of semiconductors faced issues during the COVID-19 pandemic. A surge in demand due to the new normal outpaced supply, which led to a global supply shortage across the automobile semiconductor industry. Most of the automobile manufacturers, especially EV makers, have been hit hard due to this shortage.

However, Indie has been able to avoid the worst of the supply problems. According to Indie’s CEO, the company is actually benefitted from the global chip shortage. It's fully focused on the automobile segment of the semiconductor market and has carefully selected suppliers that operated in a similar fashion.

THBR stock has fallen after the merger announcement. Most of the decline is due to the market rotation from growth to value stocks. It hit a 52-week high of $14.09 on December 28 and has declined by 28 percent since then to trade at $10.17. According to THBR's current market price, Indie has an EV of nearly $1 billion. Based on the company’s own estimations for revenue, it's currently trading at EV-to-revenue multiples of 2.9x and 2.0x for 2024 and 2025, respectively.

These multiples seem attractive given the high-growth segment that the company is operating in and its strong order backlog. Therefore, there's a real chance that the stock might take off after the merger.

According to IHS, the global automotive semiconductor market is expected to grow at a CAGR of 12 percent from $33 billion in 2020 to $59 billion by 2025. Indie’s potential addressable market is close to $16 billion and it's expected to rise to $38 billion by 2025. Its growth is expected to be driven by User Interface, Connected Car, Electrification, and ADAS/Autonomous. The company expects a large part of its future growth to come from the electric vehicle market. The increased level of tech support needed in vehicles is fueling the growth in the autotech industry.

Indie is well positioned in this space to take advantage of the growing opportunities. The company already has $2 billion in a strategic backlog of orders. Of these, $1 billion is at least past the development stage. Its customers include companies like Magna, Continental AG, and BYD. Indie also expects its product mix to improve over time, which will help expand its gross margins from 29.5 percent in 2019 to 59.5 percent in 2025. It expects breakeven EBIT and EBITDA in 2023.