Does VivoPower International (NASDAQ:VVPR) Still Have More Upside?

April 08, 2024 at 05:00 AM EDT

VivoPower International (NASDAQ: VVPR) shares surged after recent announcements, giving shareholders in excess of triple-digit returns. But as VVPR stock continues to make new 52-week highs, potential investors on the sidelines may be questioning whether they might have missed out entirely on the rally. Could the stock still have more upside going forward?

Just to recap, on April 2, VivoPower subsidiary Tembo E-LV announced that it would be going public via a merger with special purpose acquisition company Cactus Acquisition Corp. (CCTS), and upon closing of the deal, the combined company would remain Nasdaq-listed under the name Tembo Group. CCTS will issue 83.8 million shares in exchange for Tembo shares at $10 per CCTS share, which corresponds to a pre-money indicative equity valuation of Tembo of $838 million.

A total of 16.76 million Tembo Dividend Shares, representing 20% of the 83.8 million shares, will be distributed to Vivo Power shareholders, who will receive 5 Tembo Group shares for each VivoPower share held. The final merger agreement and independent fairness opinion will be finalized in May, with the merger targeted for completion by August 2024. According to its most recent quarterly filing, CCTS has $25 million in cash on its balance sheet.

This deal would be massively beneficial to VivoPower International (NASDAQ: VVPR) shareholders. Since the transaction was announced, VivoPower’s trading volume has surged, topping 120 million shares, eclipsing its daily average of about 45,100 shares and its previous one-day record of 11.05 million shares.

This is in spite of the company having a low float of only 1.4 million shares.

Going forward, VivoPower appears to still have more room for significant upside, considering its stock is still undervalued relative to the deal it just announced. Here’s a quick summary of why VivoPower shares are primed for further major upside.

Shareholders get 5 Tembo shares worth $10 each for every Vivo share held.
Taking a very conservative scenario, 10% of $838 million would add at least $83.8 million in market cap for VivoPower.
VivoPower has about 3.3 million shares outstanding, which would translate into a share price of roughly $25 per share.
At $1 per dividend share, that would translate to an additional $5 per share held for VivoPower shareholders.
That means that VivoPower could see its market cap conservatively increase by at least another 4x on the back of this deal alone.
If Tembo shares end up at say $6, which is still a 40% discount to the deal price of $10, VivoPower shareholders get approximately $152 of value. This represents approximately 25 times the current share price.

Essentially, even if the Tembo share price upon IPO is only $1, this implies a per-share valuation for VVPR of $25, including the value of dividend shares.

VivoPower’s upside potential is further reaffirmed by the fact that it received direct investment in Tembo from an Emirati-based family office associated with the ruling family of Dubai at a $120 million pre-money valuation. Based on this, the value per share of VVPR should be approximately $40 per share. This represents 7x the current share price of VVPR.

Just to reiterate, that could still be a conservative outcome, as there are analysts who believe there's even more upside potential for the company. Finviz, for instance, has a $50 price target for VivoPower International (NASDAQ: VVPR) shares.

During the week, management further reaffirmed their commitment to increasing shareholder value after VivoPower International (NASDAQ: VVPR) announced that its Board of Directors had authorized a capital management strategy including a stock buyback program that would allow the company to purchase up to $5 million of its outstanding common stock.

Any share buybacks would be funded using the company’s proceeds from the realization of business and asset divestitures, including spin-offs like the Caret business unit’s portfolio, representing up to ten solar projects totaling 586 MW-DC.

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