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Altimeter, the Grab SPAC, was up 27% on Tuesday but there is more upside

  • The stock rose on unconfirmed reports of a favourable vote in the deSPAC and a meme following. Volumes were 10x average

  • The surge could also be tied to its heavily shorted nature

  • We reiterate the fundamental case for AGC US with 6% upside to our TP. Grab could emerge as the Super App of ASEAN

Altimeter, the Grab SPAC, was up 27% on Tuesday but there is more upside
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
10 November 2021
Published by

We reiterate our BUY recommendation on Altimeter Growth Corp (AGC US), with our unchanged target price of US$16.5 implying 6% upside after AGC US shares rose 26% on Tuesday on the Nasdaq.

The rise was supported by 10 times the average daily volume of shares traded.

Price movement in AGC US

There are two principal reasons for the surge:

  1. AGC US has emerged as a meme stock. The stock is the number one trending company on trader chatroom Stocktwits. There are unverified comments in the chat room that the deSPAC with Grab has received the approval of shareholders.

    The chat room is also speculating that Altimeter Growth Corp will rise like DWAC US, the Trump SPAC. Last month, former President Trump announced that his new venture Trump Media & Technology Group (TMTG) would merge with Digital World Acquisition Corporation (DWAC), a SPAC that raised US$293mn on the Nasdaq.

    DWAC rose almost 850% on the news, with its share price shooting up from US$10 to a high of US$175, before closing on US$94.20.

  2. AGC is sitting duck for a short squeeze. We highlighted the high likelihood of a short squeeze last week (Grab Altimeter before the almighty short squeeze).

    The stock has risen 27% since then. AGC US's short interest ratio (the number of shares held short divided by the stock's average daily trading volume) has risen sharply from less than 1x before the Grab merger was announced. It peaked at 52x after the deal was delayed in June and remains elevated, at 6.4 times average daily trading volume.

    AGC US: Short Interest Ratio

    The high short ratio is due to concerns around a flood of liquidity. The SPAC terms state that 29% of the shares outstanding will be floated when the merger is completed.

    The five biggest shareholders hold 70% of the shares and have a 180-day lockup period. However, half of the holdings of the top five shareholders could be unlocked if the share price exceeds US$12.50, which it now has.

    At a Squeeze Risk Score of 98 (low is 0, high is 100), AGC US still has the highest probability of a squeeze among EM Tech players. In fact, it has one of the highest ratios of any EM stock.

    Squeeze Risk Scores

With the wild swings and swirling rumours, we urge investors to focus on the fundamental case for Grab. Meme-driven stock squeezes can lead to stocks overshooting their fundamental value. Earlier this year, we saw a meme-driven frenzy in AMC Corp, which rose 3600% from 1 January to 6 February 2021. It has since lost a third of its value.

We reiterate the following points from our investment thesis:

  1. Grab's has the potential to emerge as ASEAN’s super app

    Grab's tight grip on the ride-hailing, food delivery and digital payments space in Southeast Asia has not been fully valued by the market. It dominates all three areas.

    Grab continues to demonstrate category leadership in 2020
  2. Grab's superior post-merger net cash position

    The dominance will be cemented once the merger with Altimeter is completed, as it will be in a superior net cash position versus its competitors Sea Ltd and GoTo.

    Net cash position (US$ bn)
  3. Grab’s super app status has not been fully valued by the market, in our view. Its adjusted net revenue as a percentage of GMV is 5%, while its take rate has risen threefold since 2018. This is better than Alibaba.

    Grab should be re-rated in the coming months as an all-encompassing super app like Alibaba. It will be a one-stop shop for ride-hailing, food delivery, payments and other services. The present valuation does not reflect its potential as a super-app.