Taiga Motors: Canaccord Launches Cover With $ 23 Price Target
Canaccord recently introduced coverage on Taiga Engines (TSX: TAIG), a recently de-SPAC’d company with a buy rating and a price target of C $ 23. Canaccord owns approximately 7.4% of the outstanding shares of the company, with PSPC being owned by Canaccord Genuity.
Taiga Motors is a manufacturer and distributor of electric all-terrain vehicles and personal watercraft. The company currently has 1,500 preorders and over 750 dealer inquiries received, which Derek Dley says implies an execution rate> $ 1 billion. Of those pre-orders, about 225 or 15% of them go to large customers such as ski resort operators. Dley says: “Over the next two years, we expect Taiga to focus on increasing its exposure to fleet customers, given the substantial savings available to a commercial user. We estimate that approximately 60% of product sales will be directed to the fleet channel in the short term. “
Dley breaks down six of the main drivers of investment:
- Leading the electrification of powersports
- Strong initial demand pipeline supports electrification adoption
- Ability to move to adjacent markets
- Robust revenue growth expected with increasing manufacturing capacity
- Well-aligned management team with solid operational experience
- Inexpensive peer review of combustion and electric vehicles
For the first point, Dley points out that the electrification of powersports represents a market of 50 billion dollars. With Taiga having the early player advantage, which Dley says should allow the company to develop a leadership position as the adoption of electric powersports vehicles accelerates.
The demand for these electric vehicles has grown wildly during COVID-19, which Dley believes the demand will remain and is structural. He says that in 2020, the powersports industry in North America grew 30% year over year, with around 35% of buyers switching to new powersports. Dley writes: “Looking ahead, we believe this new, larger TAM market should allow disruptive new competitors, such as Taiga, to successfully enter the powersports market and challenge existing players in the industry.
Dley further believes that the company will slowly diversify into adjacent markets with the introduction of marine or commercial equipment and believes that the company’s powertrains would be attractive to “a whole host of potential partners and well suited to commercial applications in outside the powersports industry. “
Currently, Taiga has a 50,000 square foot facility that Dley expects to be able to produce around 2,000 units per year, with the majority of the ramp-up occurring in the third quarter of this year. The company said it plans to build a massive 340,000 square foot facility that is expected to be online by 2022 and by 2025 the location will reach a peak production of 60,000 units.
Below are Canaccord Genuity’s revenue and unit estimates up to 2025. They expect units sold to increase fourfold from 1,360 to 7,120, which will increase revenue from $ 30.1 million to $ 142.6 million. Inevitably hit 58,080 units with sales of over $ 1 billion by 2025, when the new 340,000 square foot facility reaches peak production.
They expect business gross margins to start at 5.4% in 2021 but reach 25.4% in 2025 and by 2024 the business will have positive free cash flow.
Dley believes 2021 and 2022 will see heavy capital spending as the company ramps up production and advertising.
Information for this briefing was found through Sedar and Refinitiv. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.