MICT Inc (NASDAQ: MICT) announced this morning that it has raised funds yet again. At first glance, dilution is scary. However, these funds are much needed as the company continues to execute well, making this raise positive news. Here’s what’s going on:
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MICT Announces Fund Raise
In a press release issued early this morning, MICT announced that it has raised $54 million through the sale of stock to institutional investors. The company went on to explain that the funds were raised at a price of $2.80 per share with warrants exercisable at $2.80 per share.
With this announcement, the company has bolstered its balance sheet in a big way, which by my calculations, should have about $130 million in cash.
Why This Is Actually Very Good News
At first glance, dilution is just about always a concern. However, in this case, there are several reasons the fund raise is actually a good thing. Here’s why:
- Margin Financing. First off, MICT recently announced that it has received the Hong Kong license to move forward with its trading platform. Through this trading platform, the company will give investors access to margins. However, those margins have to be funded. So, in order to fulfill this promise, the company needed to improve its balance sheet.
- Valuation. Talking about the balance sheet, with the new injection of funding, the company has somewhere near $130 million on its balance sheet. That leads to a very big question. When was the last time you saw a penny stock trading with a market cap of around $300 million that had nearly half of its market cap sitting on its balance sheet?
- Not for Cash Burn. Importantly, the funds that are being raised are not to cover general cash burn. As mentioned above, these funds are likely there to cover margin costs, which will ultimately equate to substantial revenue.
- Competition. In order to compete with the likes of Futu and Up Fintech in Hong Kong and China, the company needed to build a compelling balance sheet. This puts the company in line with these multi-billion dollar valued competitors.
- Rumors. On top of all that, rumor has it that the institutional investors in this deal are the same institutional investors that bought in just a few weeks back. If this is the case, it’s a rare sign of institutional support as we don’t generally see large institutional investments from the same institutions in penny stocks without at least a 90-day grace period between the investments. That’s unheard of!
- Institutional Interest. Finally, strong institutional interest isn’t normally something we see among penny stocks. In fact, institutions tend to avoid them. However, this raise shows that the big money players at the helm of these institutions see serious value in MICT stock.
The bottom line here is simple. While dilution is usually concerning, in this particular case, it should be welcomed. The fact of the matter is that MICT is firing on all cylinders, and because of that, the company is garnering serious interest from institutional investors.
Keep in mind, there have been three key points of evidence that show the company is executing well:
- Insurance. MICT recently announced that it has acquired a nationwide license to sell its insurance products. This expands the insurance arm of the company from regional to national while opening the door to compelling margins in the space.
- Commodities. The company also announced a partnership that will make it a premier commodities trading platform in China, serving some of the largest companies and government customers in the region.
- Stock. Finally, the most recent announcement had to do with the Hong Kong license that will allow it to launch its stock trading application, putting it in line with the likes of FUTU and TIGR.
All told, MICT has quite a bit going for it at the moment, and institutions are taking note. As such, those on the retail side of the equation should be taking note as well.
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Disclosure. CNA Finance is not a financial advisor or broker dealer. This article does not constitute a solicitation to buy any stock mentioned. The article represents the honest opinions of the author, but not necessarilly the outlet it was published on. CNA Finance has a monetary relationship with MICT. Trading in penny stocks can result in the loss of capital.