EVgo: Equity Capital Raise Comes at Steep Discount; Lowering Fair Value Estimate to $4

EVgo EVGO shares fell 19% on May 17 after the company announced a $125 million equity offering. We lower our fair value estimate to $4 per share from $5 for no-moat EVgo after updating our financial model projections. Our lower valuation is a result of tweaking our capital expenditure forecast (net of incentives) higher and our long-term gross margin forecast lower. We view shares as fairly valued following the selloff.

EVgo was able to raise the $125 million targeted—but at a steep discount. The offering was priced at $4.25 per share, a 26% discount to the company’s May 16 closing price. We believe EVgo’s limited free float played a role in the steep pricing discount. While EVgo’s market capitalization is approximately $1.2 billion, its free float is much lower given LS Power owns 73% of shares. As such, we view the sizable share offering relative to the company’s free float as contributing to the significant pricing discount.

We are not surprised by EVgo’s decision to issue equity and view the decision as prudent. Management previously indicated it had sufficient financial runway through mid-2024. We forecast an elongated path to profitability for the company (approaching break-even in 2025-26) and thus support the proactive approach to padding cash reserves given volatile capital markets.

EVgo’s fast charge network should see rising utilization as EV adoption grows, but we see limited long-term differentiation in its business model. As such, we view there to be more attractive investment opportunities within the EV investing landscape.