The raise, consisting of a rights issue (up to 138 MSEK) and a bridge loan (50 MSEK), lowers the short-term financing risks we had flagged, securing financing needs until around Q2/Q3 2025, when there may already be more signs of accelerating revenue growth. The parameters of the rights issue were somewhat different than expected, including higher dilution, which puts downwards pressure on our valuation of the stock. We expect to address this in more detail in the near future with an update on our view on the company’s valuation. However, the lower valuation of the raise together with the large share of guaranteed commitments should help make the raise successful, which would give the company runway to show more signs of commercial success.

Rights issue of up to 138 MSEK

The rights issue is directed towards existing shareholders and gives the shareholders the ability to participate in proportion to their shareholding. The terms are as follows: All existing shareholders will receive one (1) subscription right for each share held on the record date of November 20, 2024, meaning November 20 is the last day to trade Metacon’s shares including the subscription rights. The subscription period will last from November 22 to December 6, and the subscription price is set at 0.20 SEK per share. If fully subscribed, the number of outstanding shares will roughly double from 687 million to 1,375 million. Shareholders who do not participate in the rights issue will experience a dilution of ~50%, but these shareholders can financially compensate for this dilution effect by selling the subscription rights they have received. Metacon has received subscription commitments from existing shareholders and members of the Board of Directors and management of about 2%. In addition, guarantors have provided guarantee undertakings which, in aggregate, amount to SEK 108 million or ~79%. No guarantee commitment covers the subscription of and payment for shares in the rights issue in excess of SEK 110 million, or 80% of the rights issue. A guarantee fee of 12% of the guaranteed amount will be paid in cash to the guarantors based on current market conditions.

The rights issue is subject to the approval of the EGM to be held on November 15, 2024. As the company is in need of financing and the terms appear at first glance to be reasonable and accessible to all owners, we expect approval at the EGM. In addition to the rights issue, the company has entered into a 50 MSEK bridge loan agreement to secure the execution of the previously announced large order from Motor Oil. Approximately 50% of the net proceeds from the rights issue will be used to repay the bridge loan, including interest and an arrangement fee. The remainder of the net proceeds will be used for international expansion and commercialization, as well as to strengthen Metacon's working capital and manufacturing capabilities. This includes, but is not limited to, establishing the manufacturing of Metacon's catalytic reactors and starting the construction of an alkaline pressurized electrolysis plant in Sweden, alternatively elsewhere in Europe, with an expected fully developed capacity of 1 GW.

We find it positive that the immediate funding risks are solved

The capital raise was largely anticipated, with the primary uncertainty being the conditions under which additional funds could be secured. In our valuation model, we had estimated equity issues of 50 MSEK in both 2024 and 2025 at a subscription price of 0.48 SEK per share. Since the actual capital raise exceeded expectations in size and the discount was steeper than anticipated, resulting in greater dilution, this has a negative impact on the per share valuation, which we will discuss in more detail in a forthcoming update on the company's valuation.

As of the end of Q2, Metacon held a cash position of 39.1 MSEK. Factoring in net proceeds of approximately 118 MSEK (assuming full subscription to the rights issue, a 12% guarantee fee on the guaranteed amount and approximately 5% transaction costs) the company’s pro forma cash position is 157 MSEK. With an estimated burn rate of 20-25 MSEK per quarter and plans to use part of the proceeds to repay the 50 MSEK bridge loan, the company’s funding needs should be covered until approximately the second or third quarter of 2025. Based on our estimates, the remaining funding gap amounts to roughly 200 MSEK for the period of 2025-2027.

However, Metacon has outstanding warrants that, if exercised at the maximum price of SEK 0.44, could generate an additional 51 MSEK in 2025. Additionally, the company has indicated that in the event of significant interest from strategic investors, it may opt to conduct a directed issue. The subscription price in any directed issue would not be lower than the price set in the current rights issue. We consider this a likely scenario, given the sizeable funding gap. Nevertheless, we anticipate that Metacon will have improved its business fundamentals by the time of its next potential capital raise in H1’2025. If the delivery schedule for the large-scale order from Motor Oil remains on track and the company secures additional orders of similar magnitude, we should see signs of accelerated growth by 2025.