Investors seemed to like the latest news out of Nio (NYSE:NIO) HQ, even though this latest move comes with what is usually a big sentiment killer – significant share dilution.
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On Monday, the Chinese EV maker announced that Abu Dhabi’s CYVN Holdings had invested $2.2 billion in the company by acquiring 294 million newly issued NIO shares. The deal values NIO’s stock at $7.50 a share and brings CYVN’s total stake in the company to 20% following a $1.1 billion investment made back in July. The deal also allows CYVN to nominate two directors to the Board.
Deutsche Bank analyst Edison Yu believes the move will help assuage fears regarding a lack of cash in the coffers.
“Our initial view is this move eliminates the near-term overhang around capital runway given sheer size of the deal,” the analyst explained. “Coming in, we were expecting 11-15bn RMB in cash burn next year which would have taken NIO into net debt position or at least very close to exiting 2024. This transaction should provide runway through 2025 including launching two mass market brands (ALPS in 2H24 and Firefly in 2025) and further commercialization of NIO’s internal chip development efforts.”
However, while the move is indeed positive and the cash injection vital, Yu makes the case that fundamentally it comes from a “position of weakness.”
Given the stock is currently sitting near multi-year lows and sales being underwhelming, management opted for a capital raise that significantly diluted shares. This move is concerning as it could hinder the implementation of more assertive cost reduction measures or strategic initiatives in the near future. Additionally, Yu thinks it might signal that first quarter sales are going to be rather sluggish, thereby prompting management to proactively secure capital beforehand.
“Ultimately,” Yu sums up, “for the stock to truly work, we still believe success/failure comes down to the recent sales force initiatives showing meaningful traction.”
All told, Yu maintained a Buy rating on the stock, backed by an $11 price target. This figure implies shares are set for growth of ~26% in the year ahead. (To watch Yu’s track record, click here)
What do the rest of Wall Street’s analyst corps think? The stock has 10 recent analyst reviews, which break down to 7 Buys and 3 Hold for a Moderate Buy consensus rating. The average price target on NIO, $11.02, is practically the same as Yu’s. (See Nio stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
