The reward came pretty fast and the risk-reward ratio had swapped.
The article for BM Technologies (BMT) was released on the 23rd October 2021 and the share price is up a good 45% since.
Since crossing the USD11.50 exercise range, the market capitalisation had hit USD150m on 12.2m shares, but if we take the 23.8m outstanding warrants into consideration, the valuation would top out at around USD432m.
At USD432m, it will be price at around 6x revenue. Since the BMT is operating at around 30% ROE and has ample opportunity to grow their topline and bottomline, the valuation does not look overly stretch.
The question is on how to underwrite BMT ability to grow.
The answer on revenue growth came swiftly together with the result announcement.
On 15th November, BMT announced that they are buying a bank!
This is really unexpected for me. I had bought a pure FinTech play and it is turning into a digital bank!
With a bank charter, BMT would be able to shift all their deposit onto the acquired bank balance sheet and thus earning more margin in between.
The likely increasing interest rate environment should become better for banks who makes money from net interest income…
Now there is reason for the exercise of all the warrants. The higher capital requirement to operate a bank will definitely lead to fund raising and a lower ROE?
Overall, I am quite uncertain on how to underwrite BMT next growth phase and the likely scenario would be that I am swapping out my shares for USD?
Or maybe I should try the David Gardner’s approach to hold and see if this is going to be a 10 bagger?
But what I am really sure is that there are a few more post-SPAC company on my watchlist and this is definitely an interesting area to squeeze out some extra yield.