- Deutsche Bank on Monday added General Motors to its short-term catalyst call buy list on the potential that it will spin off its electric vehicle business.
- Shares of GM jumped as much as 10% in intraday trading Monday.
- “From our numerous conversations with investors, we get the sense they view the probability of GM spinning off EV as negligible, which in our view offers an attractive setup for the stock, with asymmetric payoff,” wrote DB analyst Emmanuel Rosner in the Monday note.
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Shares of GM jumped as much as 10% to $US30.77 per share in intraday trading Monday before paring some gains after Deutsche Bank added it to its short-term catalyt call buy list.
GM was added to the list on the potential that it spin off its electric-vehicle business, a move that Deutsche Bank argues would “force the market to recognise its robust EV technology and upcoming vehicle lineup,” according to analysts led by Emmanuel Rosner.
In addition, the move would “unlock considerable shareholder value, give the new entity large access to cheap capital to fund expected growth, and provide ability to attract and retain high-calibre talent,” said Rosner. He is targeting a 20% return for the catalyst call, according to the note.
While GM has not confirmed that it will spin off the EV business, on a recent earnings call, CEO Mary Barra said that “nothing is off the table” when asked about the potential move by Rosner. This year, other electric-vehicle companies that compete with GM such as Tesla and Nikola have surged, while traditional automakers have stumbled.
“From our numerous conversations with investors, we get the sense they view the probability of GM spinning off EV as negligible, which in our view offers an attractive setup for the stock, with asymmetric payoff,” said Rosner.
Deutsche Bank estimated that breaking off the EV business could value GM in a wide range between $US28 and $US93 per share, and that it would create shareholder value under every scenario, making it a “no brainer.”
Potential catalysts would likely occur in the coming months if GM announces it is pursuing a spinoff, or says that it is exploring the option, according to the note.
“We believe GM management is well aware that it may have missed out on an opportunity to unlock large valuation upside from spinning off Cruise a couple years ago, and could be looking to seize rapidly the current opportunity from investors’ enthusiasm for vehicle electrification,” said Rosner.
GM has shed roughly 18% year-to-date.