Should You Buy IVAN SPAC Stock Before the SES Merger?

Ivanhoe Capital Acquisition Corp. (IVAN) and SES announced their merger in July 2021. The deal values SES at an implied pro forma equity value of about $3.4 billion. Many people want to know if IVAN stock is undervalued before the SPAC merger with SES.

Founded in 202, SES manufactures hybrid lithium-metal rechargeable batteries for EVs (electric vehicles). The company now has prototypes nearly ready for General Motors and Hyundai.

The transaction is anticipated to close in Dec. 2021. SES will receive $476 million in gross cash proceeds, including $200 billion in PIPE (private investment in public equity) at $10 per share. The PIPE investors include Koch Strategic Platforms, Hyundai Motor Company, Geely, Kia, General Motors, Fidelity, and Franklin Templeton.

Currently, IVAN stock is being tracked by just one Wall Street analyst. Wolfe Research has given the stock a "hold" recommendation and a target price of $12.

IVAN has assigned SES a pro forma implied equity value of $3.4 billion and an enterprise value of $2.7 billion. Based on this, its enterprise value-to-2024 sales multiple is 34x. The multiple for 2027 is 0.6x, which seems more reasonable. In comparison, Solid Power and QuantumScape have enterprise value-to-2027 sales multiples of 1.2x and 3.3x, respectively.

A lithium-ion battery uses a liquid electrolyte, while a solid-state battery, as the name suggests, uses a solid one. This enables solid-state batteries to be lighter, have a longer range, recharge faster, and have higher energy density. Although existing lithium-ion batteries, such as those used in smartphones and electric cars, are good, there are several safety issues. Conventional lithium batteries, for example, contain flammable liquid that can catch fire.

SES, a pre-production lithium battery supplier, has battery prototype facilities in the U.S. and China to develop a new hybrid lithium-metal battery. The company claims that it can charge its batteries to 80 percent in less than 15 minutes.

The battery supplier plans to start production in 2025, and expects to generate revenue of $0.5 billion in 2025 and $3.2 billion in 2026. The company expects to turn EBITDA-positive in 2026 and foresees EBITDA of $0.5 billion in the same year.

SES stock looks like a good buy given its attractive valuation and the shift towards EVs. However, it’s worth noting that projections provided by the company should always be taken with a grain of salt. SES stock might be subject to the same post-merger blues that many stocks have seen after their SPAC merger. Many, including Beachbody, are trading below their SPAC IPO price of $10, mainly because investors question the company’s ability to meet the forecasts provided.

Some of the top lithium battery stocks right now are:

• Albemarle
• Livent
• Piedmont Lithium
• Lithium Americas