Special purpose acquisition company (SPAC)
RMG Acquisition NYSE: RMG will reverse merge with Romeo Power Technology, a battery technology company accommodating the electric vehicle (EV) market. Shares have seen a boost due to the EV and SPAC mania boosted by the likes of
QuantumScape Corporation NYSE: QS and
Tuscan Holdings Corporation NASDAQ: THCB. The search for the holy grail of EV performance has bolstered momentum in
battery technology companies and
SPACs promising quicker charging times, longer range, cheaper costs and better safety. Momentum tends to move the group together. High risk-tolerant investors seeking speculative exposure in this segment can monitor opportunistic pullback levels for exposure.
Romeo Power Technology
The underlying company to reverse merge into RMG is Romeo Power Technology. The Southern California-based company produces EV batteries for commercial vehicles in North America and high-performance vehicles in Europe. It’s EV batteries have the highest energy density, “over 25% higher than the rest”. Its Hercules BEV Pack Family can power Class 3/4 delivery vehicles, Class 5/6 vehicles including school buses, up to long-haul Class 7/8 semis. Some of the features include: Up to 1000V working voltage delivering between 30cWh and 1MWh, configurable in 10kWh increments, distributed battery management system (BMS) architecture, module and single cell fault tolerant and fast charge time. The battery packs can snap on to current applications.
Commercial Contracts
Romeo projects 59% compound annual growth (CAGR) with sustainable projected run-rate EBITDA margins greater than 20%. The Company states in its presentation that it has already secured $544 million in revenues with companies including Phoenix, Lion Electric Company, Nikola NASDAQ: NKLA and Green Power Inc. It has MOU, prototype and development contracts with companies including BMW, Borg Warner NYSE: BWA, Heritage, Kenworth, John Deere NYSE: DE and Lonestar Truck Group. Borg Warner invested $50 million into the Company for a 20% stake in 2019. Keep in mind the new symbol when the merger completes will be NYSE: RMO which is expected to complete in the coming weeks.
Lion Electric Contract
On Nov. 17, 2020, Romeo announced a five-year production contract with Lion Electric Company beginning in in FY2021. Romeo expects the contract to generate $234 million in revenues over the life of the contract. Keep in mind that Lion Electric Co. is a Canadian bus manufacturer concentrating on electric battery-powered yellow school buses. The Company recently launched its Lion8 Class 8 fully electric truck with a range of 250 miles. Lion Electric has also agreed to a SPAC reverse merger with Northern Genesis Acquisition Corp NYSE: NGA.
SPAC Frenzy
2020 has seen a record number of SPACs hitting the marketplace. In general, SPACs are blank check companies that have two-years to find a Company to reverse merge with, or else the money gets returned to investors or put in escrow. When a SPAC reverse merger occurs, it’s like an initial public offering (IPO) without the heavy costs and institutional sponsorship. However, the downside of the reverse mergers can range from dilution for various redemptions of warrants and lockup restrictions causing the new shares to collapse, especially without institutional support. In fact, a recent study found that most SPACs had an average return of (-38%) in 2020. Therefore, it’s important to decide whether to play the momentum of the SPAC or wait for the reverse merger to take place and take exposure under the new symbol, RMG in this case. Most SPACs also warrants that can be purchased like an option to purchase new shares upon meeting certain restrictions at discounted prices. Of course, this further dilutes the float in the process. There’s no doubt the SPACs are the bubble of 2020, so only nimble traders and high-risk tolerant investors should even consider taking exposure in these vehicles.
RMG Opportunistic Pullback Levels
We use the rifle charts on the weekly and daily time frames to provide a short-term perspective for nimble trades and only the highest-risk tolerant investors to consider trading RMG shares. The weekly rifle chart has been in an uptrend powered by the weekly stochastic oscillation towards the 80-band. The weekly 5-period MA support sits at the $17.88 Fibonacci (fib) level. The daily rifle chart appears to be forming a pup breakout but still needs the daily stochastic to cross up. There are two market structure low (MSL) buy triggers above $18.50 and $19.32 on the 60-minute and daily chart, respectively. The daily make or break can provide opportunistic pullback levels at the $19.32 daily MSL trigger, $18.50 60-minnute MSL trigger/fib cluster, $17.83 fib and the $15.92 fib cluster. Potential upside trajectories range from the $25.87 daily upper Bollinger Bands (BBs)/fib to the $37.57 fib. Be aware this stock is pure speculation and only high risk-tolerant investors should even consider exposure. Keep in mind the stock symbol will also change to RMO once the reverse merger is completed. Less aggressive investors may want to wait for the merger to complete before taking exposure.
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