Centro electric group (NASDAQ:NNEC) is a new manufacturer of public electric utility vehicles (ECV) that completed its reverse merger with Naked Brand Group late last year. It changed its symbol to CENN from NAKD. But since then, CENN stock has taken a beating in January 2022. It now looks quite interesting.
As usual in this kind of reverse merger deals, the details are very complicated and it is difficult to grasp exactly where things stand.
But here is my attempt to understand why I think CENN stocks look interesting here. I’m not saying it’s cheap, but I could be wrong on one major factor, given that I still don’t know what the total fully diluted share capital base really is right now.
Where are things at with the CENN stock
Based on a recent SEC 13-D filing on Jan. 26, it appears insiders believe there are now 261,256,205 common shares outstanding as of Jan. 4, 2022, so at the current price of CENN stock (February 1) of $1.73 which puts the market value at $453.27 million.
However, based on a paragraph on page 5 of a Jan. 5 6-K filed with the Securities and Exchange Commission (SEC), there were more shares outstanding than that after the consolidation. The paragraph says that the reverse merger resulted in the issuance of
“174,853,546 Ordinary Shares, representing approximately 66.9% of the Ordinary Shares outstanding immediately after the closing of the Combination.“
In addition, the new company issued shares for $20 million to a group of Hong Kong investors. But it’s unclear if this is included in the reverse merger actions or if there are additional shares issued.
That’s what I mean about the convoluted nature of the specific details of this transaction.
What CENN shares could be worth
However, there are some things we know that could help us assess the stock. First, the company has plenty of cash in the bank. Based on page S-2 of a prospectus filed Nov. 17, before the deal closed, the company had “at least US$282 million immediately prior to closing.” It is unclear whether this includes the $20 million capital raise that was announced before the close.
It also had “liabilities not to exceed US$10 million in aggregate immediately prior to closing.” Thus, its net cash is approximately $272 million.
So, based on its market capitalization of $449.5 million, net cash now represents 60.5% of its market valuation. In other words, net cash is $1.04 of the share price of $1.72.
This implies that the ECV business is valued at just 39.5% of $449.5 million, or $177.55 million. That probably seems too cheap for Cenntro Electric Group’s ‘stub’ value ex its cash.
On the one hand, the company said that it had just received an order for 2,000 ECVs to be exported to Japan, which it was supposed to deliver in January 2022. Moreover, page 11 of its slide presentation indicates that revenue for 2021 was estimated at $25 million. and $506 million in 2022 for 22,000 units delivered.
That means it’s trading at just 35% of estimated 2022 sales. That’s calculated by dividing $177.55 million in stock value by the $506 million in projected 2022 sales. That’s way too cheap .
If my calculations are correct, CENN stock should be trading three to six times higher than its current price.
For example, at 3 times its price, or $5.16, less the $1.04 in net cash, puts its stock value at $4.04 per share or $1,056 million (or $4.04 x 261 .3655 million shares). This gives it a value of 2x sales (i.e. $1.056 billion / $506 million in forecasted sales).
This is a minimum valuation for CENN shares. This sounds very interesting, assuming that these numbers can be verified by the company when it next produces final financial statements. However, this is not expected to happen until April 2022. So, by then, investors could have a unique opportunity to get good value with CENN shares.
As of the date of publication, Mark R. Hake held no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and execute the Guide to Total Return Value that you can see again here.