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As a first step, the reference shareholder informed us of its desire to finance the operation through the exercise of already issued and outstanding warrants. As at 27 October 2021, of the 147m warrants held by the company itself, 294m shares could be issued at 0.025 per share, corresponding to a potential cash in of €7.3m. At the same date, outstanding warrants held outside the company could add €1.5m if exercised. The Ott Group, the reference shareholder, has not communicated the timetable for the exercise of the warrants it holds but has expressed its wish to support the Company by intervening, if necessary, in addition via a shareholder current account. These warrants were issued in October 2014 with a maturity of 5 years, i.e. 2019, at a subscription price of €0.050 per share. In December 2019, the maturity of these warrants was extended to December 2023 in return for a two-for-one split of the subscription price to €0.025 per unit. The initial cash-in of the 345m warrants issued was thus halved to €8.6m.

We neutralise the residual NRS (Bonds Redeemable in Shares), the conversion of which will not bring any cash to the Company. Their redemption will simply reduce the Company’s external financial debt in exchange for a foreseeable dilution (increase in the number of shares in circulation). Following the exercise of several tranches of NRS during 2021-22 (FIPP, GLOBALTECH, OTT, source: AMF notice) the number of NRS outstanding is not precisely known at this date.

As of the date hereof, and excluding the payment of targets in securities, the fully diluted capital is 578m shares. It should be noted that the significant dilution occurring at €0.025 per share reduces the valuation leverage by nature. Finally, financial theory allows us to consider as significant the valuation benchmark given by the strike of these warrants in the short term.

We estimate the cumulative start-up losses – before reaching the break-even point – in a wide range of €30-50m depending on the speed of maturation of the model and the assumptions made. The exercise of the outstanding warrants will allow the financing of approximately €9m. By deduction, MHM will need to raise €20-40m between 2022 and 2025 to finance its deployment.

Our projections include a Research Tax Credit (RTC) benefit of €4m spread by agreement evenly over 2023 to 2026 in annual instalments of €0.8m. This amount will be specified at a later date once the eligibility of MHM’s expenditure for this scheme has been established.

MHM is, and in the short term will remain, highly dependent on significant further fundraising to enable it to continue its investments to bring the service online and ensure continuity of operation. The speed of growth of the activity, with the corollary of reaching the operational break-even point, will also determine the size of the operational losses to be assumed and financed over the first few years. At this stage, this environment does not take into account an additional deployment abroad, which is assumed to be successful in relation to the French deployment.

As it stands, as reflected in the discount rate used, the Company has visibility of around 12-18 months on the financing of its expenses. Cumulative fundraising in the order of €20-40m should be expected in return for a very significant increase in the number of shares outstanding in relation to the company’s market capitalisation (c.€28m fully diluted 2023 at the target price). The issue price of the securities to be issued will depend on multiple factors, including mainly the quality of the application’s deployment and the time perspective for reaching breakeven. Thus, it cannot be ruled out that subsequent fundraising will be carried out at a unit price significantly lower than the current listing or our price target, resulting in a very significant dilution of these two indicators and thus a significant loss of substance of the shares currently in circulation. By virtue of a decision of the General Meeting of 27 July 2021 valid for 26 months (until September 2023), the Board of Directors is authorised to issue up to €500m of shares vs. a market capitalisation in 2023 (fully diluted, based on the current share price) of less than €15m.

Finally, the valuation per share will depend significantly on the issue price of future shares and therefore on the issue schedule. The most favourable schedule for the shareholder (risk reward management) is a gradual issue accompanying the maturity of the platform (higher issue prices over time). However, from the point of view of the project and the company, it is the riskiest in the event of a slow ramp-up (low issue price of tranches 2 and 3, very high dilution, difficulty in raising additional funds).

Given the issue authorisations available to management, we do not rule out a private fundraising. In this type of case, it seems appropriate to consider raising €50-100m in Silicon Valley with the support of international venture capitalists rather than proceeding with €10-20m issues every 12 or 24 months focused on France (market depth). At this stage, MHM has not informed us of its intention to seek funds in this category. In our view, it is however important to consider the leverage and freedom that a major fundraising can bring, securing the development of the project, on the one hand, and finally favouring a majority price transaction with a major competitor, if necessary by setting a market value beforehand.

The DUMENIL group (approximately 16% of the capital) committed in 2020 to support MHM to the tune of approximately €0.7m until April 2022, subject to the absence of a change of majority in the Board of Directors. As the 2021 accounts are not yet available, we do not know the amount of FIPP’s commitment as at December 2021, nor that as at the end of April 2022. Factually, the Board’s control has not evolved until April 2022.

It will be up to MHM to reimburse this contribution, in particular, no doubt, via the exercise of the warrants before the end of 2023.