Kensington Capital Acquisition Corp.

KCAC Details

Business Combination with QuantumScape: Kensington Capital Acquisition Corp. (NYSE: KCAC) is a blank-check company, focused on forming a merger, capital stock exchange, asset acquisition or a business combination with one or more businesses. On 3 September 2020, the company announced that it has entered into a definitive business combination agreement with QuantumScape Corporation, a leader in the advancement of next-generation solid-state lithium-metal batteries for use in electric vehicles (EV), to form a combined company with an implied estimated enterprise value of ~$3.3 billion.  As the world shifts to zero emissions, the business combination is aimed at developing the next generation of solid-state batteries to meet the requirements of all future electric vehicles.

Special Meeting to Approval the Business Combination: Notably on 12 November 2020, both the companies held a Special Meeting of Kensington’s shareholders to authorize the pending business combination between Kensington and QuantumScape, which is slated to be conducted on November 25, 2020. Following the proposed business combination, the combined company will be renamed QuantumScape, and it will trade on the NYSE under a new ticker called “QS”. The transaction is expected to be completed in 4QFY20, subject to receiving necessary approvals and fulfilling all the legal and regulatory conditions. 

What to Expect: QuantumScape currently has an opportunity to expand into large, new markets with compatible trends. The merger with Kensington and associated PIPE transaction will aid QuantumSacpe with sufficient fund required for its business plans, offering significant capital flexibility to pursue organic and inorganic growth opportunities.

QuantumScape Financial Estimates (Source: Company Reports)

Key Risks: The company is exposed to the risk related to the changes in the market, financial, political, and legal conditions. Further, the company is exposed to the risks related to the impacts of COVID-19 pandemic. There is also a risk that the combined entity might not realize the anticipated benefits of the proposed business combination.

Stock Recommendation: The stock of KCAC has provided a return of 34.67% in the past one month and a return of 37.8% in the last one week. The stock is currently inclined towards its 52-weeks high price of $25.75. On the technical analysis front, the stock has an immediate support level of ~$18.03 and resistance of ~$19.53. While taking any investment decision, investors should consider the risks and difficulties the new entity might face being an early-stage company with limited operational history. Absence of any immediate revenue generation, managing cash and business activities with a capital-intensive profile and delivering orders in time, remain key areas to watch out for. Considering the company’s current trading levels, limited financial information, and associated key risks, we suggest investors to “Avoid” the stock at the closing price of $19.5, up by 36.36% on 13 November 2020.

KCAC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Nordic American Tankers Limited

NAT Details

NAT Wins Contracts & Enters into Financial Deal: Nordic American Tankers Limited (NYSE: NAT) is an international tanker company, with a fleet size of 23 Suezmax crude oil tankers. On October 16, 2020, Alexander Hansson, a Director of the board of NAT, purchased 45,000 shares in NAT for a purchase consideration of $3.52 per share. In another update, the company announced two Suezmax newbuilding contracts with Samsung Heavy Industries for distribution during the 1HFY22. The company has also entered into a financing deal with a subsidiary of Ocean Yield ASA for the two vessels. The move is in line with NAT’s strategies to secure long-term financing for these two new buildings.

2QFY20 Key Highlights: During the quarter, the company reported net voyage revenues of $93.77 million, as compared to $30.65 million reported in the year-ago period. Operating expenses for the period stood at $36.12 million as compared to $35.57 million in pcp. Net income during the period amounted to $49.17 million as compared to the net loss of $14.98 million reported in the year-ago quarter. In 2QFY20, the company declared its 92^nd consecutive quarterly dividend of 20 cents per share, which was paid on September 4, 2020. The company expects 2020 outlook to remains strong. Notably, the company has reduced its long-term debt to $318 million at the end of June 30, 2020, further strengthening its balance sheet position. The company ended the quarter with a cash balance of $112.8 million. Net cash inflow from operating activities stood at $118.25 million in 2QFY20. 

The average Time Charter Equivalent (TCE) during the quarter across its fleet stood at ~$48,400 per day per ship, as compared to $44,100 per day per ship in the previous quarter. The tanker market is set to reveal robust strength and positive developments in 2020.

Key Highlights (Source: Company Reports)

Key Risks: The coronavirus pandemic remains a potential headwind in the short-term. Further, rise and fall in ship rates, stiff competition and fluctuation in foreign currency exchange rates add to the woes.

What to Expect: The company remains focused on hiring its ships with major oil companies. Further, the company has a healthy balance sheet, which is aiding NAT to distribute free cashflow to its shareholders. The company further focuses on developing its fleet of tankers in a cautious and transparent way. The company is set to hold its AGM on 18 December 2020.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of NAT closed at $3.18 with a market capitalization of ~$479.65 million. The stock made a 52-week low and high of $2.3 and $9.00, respectively, and is currently trading below the average of its 52-week trading range. The stock has delivered a negative return of ~9.1% in the last one month. The company remains on track to expand and maintain a regular and top-quality fleet, by continuing close customer relationships with major oil companies. On the technical analysis front, the stock has a support level of ~$2.74 and resistance of ~$4.76. Considering the above factors, we have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken the peer group - DHT Holdings Inc (NYSE: DHT), GasLog Ltd (NYSE: GLOG), Scorpio Tankers Inc (NASDAQ: STNG), to name few. Considering the above factors, decent 2QFY20 results, current trading levels, valuation, and decent outlook, along with associated key risks, we give a “ Speculative Buy” recommendation on the stock at the closing price of $3.18, up by 4.26% on 13 November 2020.

NAT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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