Quantumscape Corp – Lossmaking overstrained entity amid uncertain market conditions.

Quantumscape Corp (NYSE: QS) develops solid-state lithium-metal batteries for electric vehicles. The Company has been working in partnership with Volkswagen Group of America Investments for the past eight years.

Investment Rationale – Expensive at USD 57.46

• From a technical standpoint, 14-day RSI (50.22) seems unfavourable and upside potential is sceptical.
• The Company looks overstrained, considering its weak fundamentals.
• QS has a history of financial losses, and it shall continue to incur losses for the foreseeable future.
• The success of the Company is dependent upon the adoption of electric vehicles and regulatory guidelines.

Risk Assessments

• Covid-19 pandemic can adversely impact financial and business performance.
• The market acceptance of products and the ability to raise capital can also impact the growth trajectory of the business.
• The future growth is dependent upon the consumers’ willingness to adopt electric vehicles.

Financial Highlights for the year ended 31 December 2020 (as 16 February 2021)

 (Source: Company Website)

• The Company did not generate any revenue in FY20, while the net losses got aggravated in FY20.
• The business combination of KCAC PIPE and KCAC trust account strengthened the liquidity position by US$730 million.
• As of 31 December 2020, cash and cash equivalents along with marketable securities amounted to US$997.6 million.

Share Price Chart    

 (Source: Refinitiv, Thomson Reuters)

Conclusion

During FY21, the Company anticipates spending between US$230 to US$290 million in capital expenditures to strengthen multilayer cell development, and assuming receipt from VW financing proceeds to enter FY22 with a liquidity position of at least US$900 million.

Meanwhile, if the Company’s battery fails to perform as expected and consumers do not adopt electric vehicles as strongly as projected then it can harm the business performance and prospects. Therefore, it is difficult to estimate future demand and supply of batteries. Furthermore, it is an early-stage entity with no revenue and expecting continuous losses for the foreseeable future. Hence, it is prudent not to punt on this stock in the current scenario. Stock 52 week High and Low were USD 132.73 and USD 9.74, respectively.

Based on the weak fundamentals, heightened uncertainties, we have given an “Expensive” stance on Quantumscape Corp at the closing price of USD 57.46 (as on 23 March 2021), while we look forward to reviewing the Company when the Company started reporting profitability.   

Village Farms International Inc – Fluctuating market prices and uncertain demand keeping the outlook gloomy.

Village Farms International Inc (NASDAQ: VFF) leverages its 30 years’ experience to produce greenhouse goods, including fresh tomatoes, cucumbers, and peppers.

Investment Rationale – Expensive at USD 13.65

• From a technical standpoint, 90-day RSI (56.66) is hovering around the overbought position, and therefore, a short-term dip can be anticipated.
• The economic slowdown in Canada and the US can impact the productive capacity, demand for products, and availability of labours.
• VFF may need additional financing to growth the business further, and tough market conditions have impacted its ability to raise funds.
• The success of the Company is largely dependent upon Pure Sunfarms’ performance, which does not have a long operating history in the cannabis business.

Risk Assessments

• It is difficult to predict the growth of the Cannabis industry since it is a relatively new industry that faces frequent restrictions from the regulatory authorities.
• Risk pertinent to agriculture business and availability of labours amid Covid-19 conditions can also impact the growth trajectory.

Financial Highlights for the year ended 31 December 2020 (as on 16 March 2021)

 (Source: Company Website)

• VFF acquired the entire outstanding stake of Pure Sunfarms Corp on 2 November 2020.
• VFF’s 100% owned Pure Sunfarms Corp reported 248% year-on-year growth in retail branded sales in Q4 FY20. It also achieved its ninth quarter of positive adjusted EBITDA.
• The production facilities of Village Farms remained operational and there was no material disruption to the operations due to the Covid-19 pandemic.
• The revenue and net income increased 43% and 197% in Q4 FY20 against Q4 FY19.
• During FY20, the Group sales increased 18% on FY19, and net income also shown a spectacular jump, supported by higher volumes, better prices, and acquisition benefits.

One Year Share Price Chart    

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

Evidently, VFF demonstrated a robust financial performance in FY20 and capitalised well through both organic and inorganic growth. However, the stock is presently reflecting an overstretched stance, while the growth from here is highly uncertain since there is no explicit guidance from the Company, operational performance is subject to the Covid-19 pandemic, limited operating history of Pure Sunfarms, and increase obligations pertinent to compliance and regulatory authorities. Therefore, it is prudent not to invest in the stock and wait for a dip in the short-term. Stock 52 week High and Low were USD 20.32 and USD 2.44, respectively.

Based on the heightened operational risk, uncertain market conditions, and valuation methodology, we have given an “Expensive” stance on Village Farms International Inc at the closing price of USD 13.65 (as on 23 March 2021), while we look forward to reviewing the upcoming financial and operational updates.   

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

Disclaimer

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