V - MICT Inc.: The Next ESG Darling

Summary

• This piece discusses MICT, Inc., a relatively unknown and undiscovered company, that recently embarked on a transformative purchase of Tingo Mobile.
• After synthesizing its press releases, reviewing its S-4 (notably the due diligence sections), and speaking with, Darren Mercer, its CEO, I think it's real.
• MICT spent in excess of $7.5 million on its due diligence (including professional services costs). Top caliber companies conducted due diligence, on the ground (E&Y, Dentons, Houlihan Lokey, and Deloitte).
• Visa and Lazard separately and independently conducted extensive due diligence processes.

If you're familiar with my work, I'm a small-cap value and special situations investor. I'm not afraid to traverse rugged terrain and selectively put capital "at risk" in under the radar companies. Today, I write to share a compelling idea, a company that very well could be one of the next ESG darlings and a multi-bagger stock from its current share price and super low valuation.

The company is MICT, Inc. ( MICT ), and on Dec. 1, 2022, MICT completed and acquired 100% ownership of Tingo Mobile Limited, the operating business and its underlying assets. Tingo Mobile Limited was owned by parent company, Tingo, Inc. ( TMNA ), which is OTC listed. MICT is a Nasdaq-traded company. As consideration for the acquisition, MICT issued 19.9% of its common stock to Tingo, as well as Series A Preferred and Series B Preferred stock, which both convert into MICT's common shares upon certain conditions being met.

On a fully diluted basis, so pro-forma and post acquisition, assuming the full conversion of both the Series A and Series B Preferred stock shares, MICT will have 526.6 million shares outstanding. That said, on Feb. 3, 2023, MICT issued a press release where they agreed to acquire warrants representing north of 29 million shares, for total consideration of roughly $7.3 million. The repurchases will take place on staggered dates, starting March 3, 2023, followed by May 1, 2023, and then lastly during the month of July 2023.

On MICT's website, there's a December 2022 investor deck that contains the following key high level business and financial attributes of Tingo Mobile. Enclosed below, and per MICT, you can clearly see Tingo Mobile's FY 2022 revenue run rate is $1.2 billion, Tingo's customer base ending Sept. 30, 2022, was 9.3 million and the company's FY 2022 run rate of net income before tax and stock based compensation was $642 million.

Moreover, on Nov. 16, 2022, MICT announced a key partnership with the All Farmers Association of Nigeria ('AFAN') and Visa ( V ). Per the agreement, AFAN has agreed to deliver a minimum of 20 million additional farmers (subscribers). This would be in addition to Tingo's existing base of 9.3 million. These subscribers will be onboarded onto Tingo's platform and products, including its Nwassa Agri-Fintech platform. Publicly traded Visa Inc., yes that $475 billion market capitalization company, has agreed to issue Tingo Visa digital payments cards, a Tingo Mobile secured payment service and Tingo Mobile Point of Sale merchant service ( see Exhibit A in the appendix section ).

Is It Real?

At face value, given the impressive full-year revenue run rate and full-year pre-tax income, at its current valuation, MICT looks like one of the most undervalued and compelling equity investments I've seen in my entire career. Candidly, it seems too good to be true. And the only question I had in my mind was "Is This Company Real?"

To help me answer this question, the Is It Real? question, on Monday, Feb. 6, 2023, I jumped on a Zoom call with Darren Mercer, the CEO of MICT, Inc. Candidly, I got straight to it. Brass tacks - I wanted to be direct as possible and I specifically asked Darren to walk me through the pivotal 'Is It Real? question.

Our Zoom call ran longer than an hour plus and I will paraphrase the conversation, starting with the "Is It Real?" question.

Essentially, he said Tingo has been on his radar for quite some time. However, when he learned of Tingo's partnership with Visa, this really piqued his interest and led to some digging. Per that digging and discovery process, he learned Visa spent upwards of 18 months of due diligence before striking its partnership with Tingo. Next, he learned that the Investment Bank, Lazard, had also conducted a lengthy due diligence process and was very impressed with their findings. From there, after having two validations, from two highly regarded entities - Visa Inc. and Lazard, Darren got the approval of his board to conducted its own in-depth and on the ground due diligence process, in Nigeria. When it was all said and done, MICT spent in excess of $7.5 million, consisting of due diligence and professional costs.

Specifically, to spell out key element of its due diligence process, and this is detailed within MICT's S-4, which was filed with the SEC, enclosed below please see the top caliber firms involved in the due diligence process ( see the appendix - Exhibit B ).

The firms conducting the due diligence were as follows:

• Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (“Ernst & Young”) - due diligence, which was retained for tax due diligence and quality of earnings analyses
• Houlihan Lokey was retained for financial analyses
• The Nigerian office of Dentons was retained for its legal, operational, and corporate due diligence
• Ellenoff Grossman & Schole was retained for its local due diligence, corporate due diligence, and securities due diligence
• MICT also interviewed several Big 4 and Top 10 accounting for additional due diligence

It's also my understanding that Deloitte has agreed to be MICT's financial audit and they will be the auditor of record, when MICT's 10-K is filed, with an expected date of late March 2023.

Moving along, to button up the Is It Real? section, I want to very openly comment about an article published March 16, 2022 by an author, Nzkewe Henry. The media outlet that published the six page piece was WeeTracker.

I sent Darren a copy of the article and asked for a comment. He said "WeeTracker" is a relatively small privately owned publication that covers Africa's digital sector from its office in Kenya. He said from time to time Tingo has been targeted by outside parties, located in Africa, in an attempt to discredit the Tingo Mobile via the publication of untrue and factual inaccurate statements. Ultimately, it's unknowable the true motivations behind these bad actors, but he reiterates the presentation, contained within the article is inaccurate, at best, and maliciously vindicate, at worst.

Incidentally, as the saying goes, sunlight is often the best disinfectant, and within the Appendix section, I provided snapshots of five articles ( see Exhibit C - G ) written by different media outlets. Moreover, as seeing is believe, I included the hyperlink to a YouTube video, which features a clip from Arise news , of the signing of Tingo Partnership with AFAN. As you can clearly see, Chris Cleverly, President of Tingo, and Rory Bowen, Tingo’s Director and Chief of Staff, is sat with the President of AFAN, together with various Government Officials.

Now that we put to the Is It Real? question to bed, let's talk about the business.

The Business

In this section, I will synthesize my reading of MICT's press releases as well as my conversation with Darren. Throughout many parts of Africa, there are hundreds of millions of impoverished farmers. The reason why the vast majority of farmers struggle to make a living is complex, but there are a lot of commonalities. Historically, and I'm using this as an example, let's say a farmer produced 100 units of a crop. As a small and independent operator, often from harvest to market, only 40% to 50% of the production would make it market. This is due to the logistical bottlenecks, breakage and spoilage during transport and an inability to tap into a larger market. Secondly, in the old model, middlemen would take usury cuts of the revenue, as they played the role of connecting farmers' output with willing buyers. In addition, micro finance was unavailable, so farmer had to resort to usury loan sharks, charging upwards of 40% to 50% in interest. Thirdly, if you're buying in smaller quantities, it's more costly and harder to access quality seeds, equipment, and fertilizer. Lastly, crop insurance due to weather or a failed crop was unavailable. Therefore, in the old model, farmers would take all the risk, do all the hard work, and in the end, parasites, at almost every turn, in the old eco-system would enjoying the fruits of the farmers' labor, whether that be the usury loan sharks or middlemen.

What Tingo has done is create an app, which runs on a smartphone, where farmers can benefit from the fruit of their labor. Tingo's app and its ecosystem empowers farmers by offering them access to a vastly larger marketplace so they can access larger demand centers, both domestically and internationally. Ultimately, the suite of services offered, theoretically means a much higher percentage of farmers' output is actually getting to market, they're getting better netback prices, the usury middlemen and loan sharks have been dis-intermediated, and farmers gain access to more reasonable finance.

Enclosed below is how Tingo describes it:

Tingo Mobile offers its comprehensive platform service through use of smartphones – "device as a service" (using GSM technology) -- to empower a marketplace to enable subscribers/farmers within and outside of the agricultural sector to manage their commercial activities of growing and selling their production to market participants both domestically and internationally. The ecosystem provides a "one-stop shop" solution to enable such subscribers to manage everything from airtime top ups, bill pay services for utilities and other service providers, access to insurance services and micro finance to support their value chain from "seed to sale."

Dollarization And Globalization

From a business perspective, as Nigeria is a closed currency system, as the country has watched its vast oil wealth get diluted, as the country has bountiful crude oil, but it has to deal with burden of importing the much more expensive refined product.

Therefore, from an MICT investor's perspective, the Nigerian Naira has to be converted to either U.S dollars, British Pounds, Euro, or some other reserve currency. To solve this, on Dec. 12, 2022, MICT's subsidiary, Tingo Mobile, launched its global commodity platform and export business from the Dubai Multi Commodity Centre .

Per the press release - there are 21,000 member companies and $475 billion of commodity derivatives traded in 2021. The estimated population and reach of this Free Trade Zone is 547 million.

As a leading center of international trade and the World’s No.1 Free Trade Zone, with its more than 21,000 member companies and $475 billion of commodity derivatives traded in 2021, the DMCC is regarded as the ideal partner to launch the Group’s commodities and export business. Agriculture is a particularly important commodity group for the DMCC, where the Middle East and North Africa (“MENA”) region’s own considerable demand for food imports with its estimated population of 547 million ( Source: Worldbank - 2020 ), has assisted in creating a thriving and fast-growing agricultural commodities market.

As detailed within the press release, it's stated that Tingo Mobile's first export deal, estimated at $65 million, would commence within the coming weeks and months.

Relatedly, on Dec. 14, 2022, MICT announced a strategic presence in Malawi and East Africa .

Here's a key excerpt from the press release:

Having already achieved a substantial user base in West Africa, which is expected to expand considerably in the coming months, Tingo Mobile’s move into Malawi is an important development for a number of reasons. While Malawi is itself a sizeable target market for Tingo Mobile’s Agri-Fintech and FinTech platforms and products, its strategic location is also expected to facilitate accelerated expansion into other key East Africa territories, such as the neighbouring countries of Tanzania, Zambia, and Mozambique.

With farming and agriculture representing Malawi’s biggest contributor to Gross Domestic Product, maize, cassava, bananas, sugar cane and ground nuts the most widely grown crops, this new market is expected to make a material contribution to the Group’s revenues and profitability from 2023 and beyond. Through the adoption of its proven model in West Africa, Tingo Mobile is at an advanced stage of negotiating trade deals with a number of Malawi’s largest co-operatives and agricultural associations, representing several million farmers.

Now that the business and opportunity has been described, let's quickly discuss how MICT was able to acquire the asset, Tingo Mobile.

How MICT was able to finalize the Tingo Mobile deal.

After I got comfortable the business was real, and I learned about the compelling business model, my last question was how could MICT buy this great asset. Essentially, Darren said the following: Arguably, Tingo Mobile listed the business too soon, and were poorly advised to choose the OTC market for their listing. As Tingo Mobile was unhappy with its OTC listing and wanted to be uplisted, to a major exchange, MICT and Tingo entered lengthy discussions. In addition, the SPAC market had been shut down and that route would've taken upwards of a year. Secondly, and relatedly, the equity market was awful, in 2022, as so many SPAC were taken to the woodshed, as interest rates rose at one of the fastest paces in history, and there was a lot of fear and uncertainty. Collectively, all of these forces converged, both public and private equity multiples compressed markedly, and across the board, and MICT was able to acquire a fantastic asset, at a reasonable valuation. That said, and just to be crystal clear, post conversion, of the two Preferred series, Tingo Mobile, will effectively own 75% of the equity, so Tingo stakeholders get most of the upside and participate in its success.

Risks

With any investment, there are always risks. Tingo Mobile operates in Nigeria. Nigeria is an emerging market country. Emerging markets are always deemed much risker, as you have country risk, currency risk, and many other risks, as they lack the infrastructure and gold standard rule of law. There are number of operational and business risks associated with running the business as well. For this investment to work, MICT has to successfully develop its export model, such that Naira can be converted to reserve currency as opposed to be stuck, at the operating subsidiary level, and only in Nairas. Secondly, Nigeria and the strong probability of onboarding Malawi and Ghana are encouraging. However, Tingo Mobile has to successfully execute the business and there are always operational snags along the way. Lastly, there's the inherent volatility and prospective articles or future stories coming out in an attempt to discredit Tingo Mobile and its ambitions.

Putting It All Together

I'm 42-years-old and I've been at this game, formally and informally, for the better part of twenty years. I live, eat, sleep, and dream markets. I'm obsessed with my quest to find alpha, as it doesn't just grow on trees. Often, the discovery of alpha means looking at a lot of different opportunities and being willing and able to occasionally, and very selectively, venture off the beaten path. Along the way, traversing this rugged terrain, I've made a multitude of mistakes, and paid very expensive tuition, to Mr. Market, in the forms of losses. Naturally, I've learned a heck of a lot, as failure and setback can be our greatest teachers. Moreover, I wake up every day, intellectually curious, and hungry in the intellectual sense.

As I mentioned, when I saw Tingo's business model, and read and synthesized its press releases, I was intrigued. Tingo's FY 2022 annualized run-rate revenue, in absolute dollars and in terms of growth trajectory, and business profitable, look amazing. Initially, I figured it was too good to be true. Secondly, and luckily, I'm not afflicted with this terrible bias, here in the West, we some people are trained to be skeptical of Africa and a country like Nigeria.

Here's my long winded point - very few people have ever heard of Tingo Mobile. This is crystal clear by the anemic daily trading volumes. Secondly, I would argue that our biases in the West, as we now live in a post SBF world, are to immediately dismiss any company that operates in Nigeria as shady. It's easier for people to quickly dispatched any company into the "pass" bin of ideas solely because its origins are in Nigeria. Far too many people have biases that override their intellectual curiosity and objectivity to dig deeper and really try and figure out an opportunity, risks and all.

In closing, based on synthesizing varies MICT press releases, my hour plus Zoom call with Darren, reviewing MICT's S-4, notably the due diligence sections, watching the YouTube video of the Tingo Mobile and AFAN press conference, as well as reading various articles that covered it, I think MICT and Tingo Mobile are real. And if they are real, then the valuation is super compelling. At the risk of sounding crazy, I would argue that MICT could be the next ESG darling and the stock is a high probably multi-bagger.

Appendix

Exhibit A - November 16, 2022 Press Release with Tingo, AFAN, and Visa.

Exhibit B - Top Caliber Firms involved with the due diligence (from MICT's S-4, pages 163 & 164 )

In terms of due diligence, within its S-4, filed with the SEC, enclosed below please see the top caliber firms involved in a comprehensive due diligence process.

From May 10, 2022, further due diligence was performed by MICT on Tingo, as part of which MICT engaged Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft (“Ernst & Young”) to undertake financial due diligence, tax due diligence and quality of earnings analysis, as well as Houlihan Lokey to undertake financial analysis, the Nigerian office of Dentons to undertake legal, operational, corporate and Ellenoff Grossman & Schole to undertake local due diligence and corporate due diligence and securities due diligence. The due diligence was conducted through document review and numerous telephonic conferences with representatives and management of Tingo, in addition to which Ernst & Young and Dentons visited the offices and operations of Tingo and its trading subsidiary in Lagos. To assist with the due diligence process, Tingo made available a virtual data room, which was periodically updated with additional information.

From May 12, 2022 to May 24, 2022, MICT’s management team interviewed several Big 4 and Top 10 accounting firms to undertake a range of detailed analysis and due diligence work on Tingo.

On May 25, 2022, MICT formally engaged a Big 4 accounting firm to assist MICT’s management with its financial due diligence, tax due diligence and a quality of earnings analysis, and to produce reports on their findings in each of these areas. The accounting firm was not retained by MICT to provide analysis or a recommendation regarding the consideration to be paid to Tingo securityholders in connection with the combination. Tingo provided the information and financial team to support the diligence completed by MICT’s management and the accounting firm, including providing access to a virtual data room and facilitating face-to-face and virtual meetings with members of the Tingo management team and financial team over a three week period.

Between June 10, 2022 and June 14, 2022, the accounting firm delivered its reports to MICT. During the course of their work, the accounting firm held multiple discussions with MICT’s management team and advisory team to discuss their findings to agree changes to the scope of work from time to time. In order to undertake their work thoroughly and efficiently, the accounting firm assigned a large number of employees to Tingo, which included teams in Africa, Europe and the United States of America.

The due diligence reports from the accounting firm covered a broad scope of work including but not limited to a review of historic information, an analytical review, the background of the company, the business model, the quality of earnings (including revenues, pricing, costs, margins and profitability, an analysis of trends, quality of net assets and the balance sheet, quality of cashflows, quality of financial information, and a review of all direct and indirect taxes. The reports and findings of the accounting firm corroborated the information and representations provided by Tingo during the previous negotiation of the terms of the Merger.

At the request of MICT’s board of directors, Houlihan Lokey then reviewed and discussed its financial analyses with respect to MICT, Tingo and the proposed merger. Thereafter, at the request of MICT’s board of directors, Houlihan Lokey orally rendered its opinion to MICT’s board of directors (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion dated June 14, 2022 addressed to the MICT’s board of directors) as to, as of such date, the fairness, from a financial point of view, to MICT of the aggregate ownership ratio provided for in the merger pursuant to the merger agreement.

Having completed all due diligence by June 14 2022, MICT and Tingo entered into and executed an Amended and Restated Merger Agreement on June 15, 2022 amending the original merger agreement and MICT issued a press release announcing the transaction on the same date.

(Source: MICT's S-4 - pages 163 and 164)

(Exhibit C - October 19, 2022 - published in Vanguard Limited Media, Nigeria)

(Exhibit D - October 21, 2022 - published in Tribune Online, a publication of African newspaper of Nigeria Plc)

(Exhibit E - November 18, 2022 - published in Nannews.ng )

(Exhibit F - October 20, 2022 - All Africa)

(Exhibit G - November 18, 2022 - The Sun Nigeria)

For further details see: