Eve Urban Air Mobility: A Winning Stock or a Disappointing Dud?
Eve Urban Air Mobility is soon to be listed on the Stock Market, which poses the question. Will its share price rise over time and be a financial winner or fall and become a disappointing dud?
Next week another eVTOL company goes to market treading the recent path of Joby Aviation, Archer, Lilium and Vertical Aerospace. The stock market flotation will be carried out via a SPAC (Special Purpose Acquisition Company), this time with Zanite Acquisition Corp, to join the approximately 2,800 companies listed on the New York Stock Exchange (NYSE). It is likely the price will open at around USD10 a share like previous eVTOL SPAC mergers.
Welcome to Eve Urban Air Mobility with its glossy new ticker symbols EVEX and EVEXW. The company is an off-shoot of Brazilian aerospace manufacturer, Embraer, the third largest commercial aircraft OEM (Original Equipment Manufacturer) behind Boeing and Airbus.
The final steps to Eve’s BIG day begin on Friday, May 6th with a special meeting of Zanite’s stockholders to approve the business combination. This approval period, viewed as a formality, is expected to close the following Monday, May 9th and once passed, Eve then becomes a NYSE listed business rubbing shoulders with some of the biggest and best-known in the world.
As a result of the merger, Eve receives up to USD542 million of proceeds, which consists of USD237 million from Zanite’s cash held in trust and USD305 million of private investment in public equity (PIPE), led by Embraer, Zanite’s sponsor, Azorra Aviation, BAE Systems Bradesco BBI, Falko Regional Aircraft, Republic Airways, Rolls-Royce and SkyWest. The business combination will leave Eve with a pro-forma equity value of USD2.9 billion, or a pro-forma enterprise value of USD2.4 billion, at USD10 per share.
While impressive on paper, unfortunately, all the previous listed eVTOL companies have had a torrid time in recent months. Caught up in the tech sell-off and coupled with uncertainties surrounding the world economy, then exacerbated by the Russian war with Ukraine, many flying taxi investors feel battered and bruised with prices falling, in some cases, by well over 50 percent since their float price. So logic suggests EVEX may suffer a similar fate… or will it?
Back in January, the respected financial website, seekingalpha, published a well-researched feature on Eve. In the past, the website has written some dismissive articles on the investment potential of this industry. So, journalist Riyado Sofian surprisingly writes, “Yet another eVTOL company is going public, but Eve Air Mobility is not just another eVTOL company. It has excellent management with deep industry expertise, exclusive support from its parent company, and a solid partner ecosystem. And we can see that Zanite is no ordinary SPAC either as both management teams highly complement each other with their deep expertise in aviation.”
But after this glowing praise, he then adds, “However, competition, overvaluation, and investor impatience may weigh down the stock in the short-to-medium term. Thus, I am bearish.”
Interestingly, the same website four months later has posted a feature this week with the heading “Joby is Disrupting Air Mobility. It’s Time to Buy.” Contributor, Robbe Geeraerts, concludes, “If you are willing to take a leap of faith in the name of innovation, and as an investor have the time to not look at its stock for at least a few years, it may be a good idea to consider adding a small position in the company to your portfolio.” This could apply to a majority of listed eVTOL stocks with the inference that the industry’s potential is sufficient to make such shares a promising long term hold. Perhaps, certain financial journalists are now softening their approach to the industry?
But back to Eve.
Amidst all the doom and gloom surrounding the world economy what impresses the most about the company is its future order book, a potential pipeline of close to USD5.2 billion, comprising of 1,735 vehicle orders, via non-binding letters of intent, from 17 launch customers, including fixed wing and helicopter operators, aircraft lessors and ride sharing platform partners. These company orders tower over its competitors with only EHang and Vertical Aerospace coming close.
A further important point to make is that Embraer (which owns approximately 82 percent equity stake in Eve) and Zanite have agreed to a three-year lockup. This may help reduce share price volatility over the medium term offering investors some degree of stability.
Sofian concludes, “Despite raging competition, I believe Eve has the potential to be a major player in the eVTOL industry, especially in countries outside of the USA.” He goes on, “First, Eve has a strong management team backed by aviation veterans from the Zanite team. Second, Eve has strategic support from Embraer, the leading business jet producer in the world. Third, Eve has an order pipeline of USD5.2 billion across 17 different customers. Finally, Eve has a simple aircraft design that should be easier, and therefore, faster to certify.”
Even so, Sofian unsurprisingly remains bearish for now.
“While Eve looks like a promising eVTOL company, I expect its stock to do poorly in the short-to-medium term. First, the broader eVTOL sector is trading well below USD10 per share. Second, there seems to be no near-term catalyst that could send the stock higher. Third, investors are losing their patience. It will require at least another 4 years before Eve launches and there has been no footage of craft test flights as trials will not occur until 2023.”
A humble suggestion. Perhaps, wait until the stock falls to USD7 or below before buying a tranche for a long term hold. There is no hurry.
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