Virgin Galactic Holdings, Inc.

Virgin Galactic Holdings, Inc. (NYSE: SPCE) is a vertically integrated aerospace and space travel company, pioneering human spaceflight for private individuals and researchers, as well as a manufacturer of advanced air and space vehicles.

Key Highlights:

• Operational Update: On June 25, 2021, Federal Aviation Administration (FAA) updated and expanded the company’s existing commercial space transportation operator license. Now the SPCE has assigned the space line to fly customers to space post extensive review of data gathered from May 22 test flight which had confirmed the successful flight performance. The May test flight successfully cleared all the company’s testing program and the criteria’s required to meet the verification and validation required by the FAA.
  

• RSI is in overbought zone: Due to the recent news, the stock of SPCE soared ~51% in the last one week. On the daily price chart, the Relative Strength Index (RSI) level has increased to 83.77 levels, which is comparatively high and indicates overbought positions. This suggest the stock may consolidated or correct from the current levels.

One-year technical price chart, Analysis by kalkine group

• Increase in Accumulated Deficit: The group is yet to report an income from its operations and hence reported constant losses, which led to a higher accumulated deficit. Notably, the accumulated deficit increased to USD 891.817million in Q1FY21, higher than USD 770.744 million in Q4FY20.

Q1FY21 Financial Highlights:

• SPCE announced its quarterly result, wherein the company posted an operating loss of USD 81.277 million, increased from a loss of USD 60.972 million in pcp, due to higher selling, general and administrative expenses coupled with higher research and development costs.
• Net loss stood at USD 129.694 million, as compared to USD 376.826 million in pcp.
• Cash and cash equivalents stood at USD 616.625 million, declined from USD 665.924 million in Q4FY20. The group reported its total assets of USD 748.027 million at the end of Q1FY21. 

Q1FY21 Income Statement Highlights (Source: Company Report)

Stock Recommendation:

The group has a unique business model which focuses on human spaceflight for individuals and researchers. The concept remains very attractive due to the absence of any solid competitor within the segment. However, the possible commercialization of the project remains uncertain, so as the company’s income generation. The stock of SPCE already made more than two-fold returns in the last nine months and one year, respectively. Additionally, the stock is trading at an excessively higher valuation levels with EV to Sales multiple of 831.3x on an NTM basis, as compared to the industry (Aerospace & Defense) mean of 21.5x. Hence, considering the recent price movement, uncertainty of income coupled with higher valuation, we would advise investors to book profits and recommend a ‘Sell’ rating on the stock at the closing price of USD 55.91 on June 25, 2021.

One-Year Technical Price Chart (as on June 25, 2021). Analysis by Kalkine Group

Property Solutions Acquisition Corp

Property Solutions Acquisition Corp. (NASDAQ: PSAC) is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities.

Key highlights 

• Acquired Faraday Future: On January 27, 2021, the PSAC entered into an agreement and plan of Merger with Faraday Future (FF). FF is a global mobility technology company that designs and engineers next-generation smart electric connected vehicles. Special Meeting of Property Solutions Acquisition Corp. will be held on July 20, 2021 to approve the business combination with Faraday Future. Following the closing, the combined company’s stock is expected to trade under the ticker symbols “FFIE”.
  

• The Market Potential for Smart EVs is massive and growing: The accelerating adoption of electric vehicles represent an enormous opportunity for the company. As per the estimates almost 7mm Passenger EV units would be sold annually by 2025. Global CO2 emission legislation continues to tighten and even 15-20 countries have fixed dates to stop the usage and sale of Internal Combustion Engine, which would be fulling the demand of EV.

Source: Company Presentation 

• Revenue recognition to start by FY2022: The company would be primarily targeting consumers and businesses in the two largest EV markets (US and China). The production launch of FF91 is expected in FY2021, while the deliveries are expected to begin in FY2022. In line with vehicle volume ramp, the company’s revenue is expected to grow to USD 21.44 billion by FY2025. The company is targeting 30%+ contribution margin across FF series and 20%+ contribution margin for Smart Last Mile Delivery.

• Breakout on Daily Price Chart: On the daily chart, PSAC stock price witnessed a breakout of the horizontal channel pattern at USD 15.50 level (on June 25, 2021). Prices registered a decisive break out of the sideways pattern that suggests a change in the trend from sideways to upward. Moreover, the stock is trading above 21-period and 50-period SMA, which may act as a crucial support level for the prices. The stock has resistance at USD 18.5 level.
  

Financial overview of Q1 2021

Source: Company

The company reported a net loss of USD 1.81 million for the three months ended March 31, 2021, which included operational costs of USD 0.88 million, changes in fair value of warrant liabilities of USD 0.96 million, and interest income of USD 30,713 on marketable assets held in the Trust Account. 

Risks associated with investment

The company is prone to many risks associated with the nature of their business which could hamper its performance, some of these risks are like fall in demand, disruptions from the supply chain, any technological change, increased prices of raw materials and commodities, competition etc. Furthermore, it is subject to laws and regulations enacted by national, regional, and local governments.

Stock recommendation

For the Company, the rapid use of electric cars provides a huge potential. The Company has a bright future ahead of it, as the worldwide electric vehicle market is predicted to develop at a 31% CAGR from 2020 to 2030, which would provide a lot of opportunities. Moreover, the stock has witnessed a breakout of the horizontal channel pattern on daily price chart. Based on technical analysis, the stock has support at USD 13.0 level. Considering the anticipated benefits from the business combination with Faraday Future, expected production launch of FF91 in FY2021, along the revenue growth in the next five years and associated key risks, we recommend a “Speculative Buy” rating to the stock at the last closing price of USD 15.96 with a lower double digit upside potential.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock if the price closes below the support level.

One-Year Technical Price Chart (as on June 25, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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