Why is the Sovereign Cloud (ASX:SOV) share floating 27% higher today?

A woman wearing a red jumper leaps into the air with sky behind her and earth beneath her.

The Sovereign Cloud Holdings Ltd (ASX: SOV) share price has returned to trading following the company’s completed placement and institutional entitlement offer.

At the time of writing, the infrastructure-as-a-service (IaaS) company’s shares are fetching for 77.5 cents, up a sizeable 27.05%.

Sovereign Cloud share price resumes

It’s been a strong day for the Sovereign Cloud share price, with investors buying up amid the company’s successful equity raise.

In a statement to the ASX, Sovereign Cloud advised it has raised gross proceeds of approximately $35 million. This consists of a placement to data centre operator, Nextdc Ltd (ASX: NXT) and the accelerated institutional component.

The placement saw 24.9 million shares issued to Nextdc at a price of 50 cents per share, raising $12.4 million. This was completed Monday 22 November and gives Nextdc a 19.99% controlling interest in AUCloud.

On the other hand, the institutional component raised roughly $4 million at the same price. This comprises a 4 for 11 fully-underwritten accelerated pro-rata non-renounceable entitlement offer. In turn, around 8 million new ordinary shares are to be issued by the company on 30 November.

A retail entitlement component is also expected to be raised, allowing everyday shareholders to take part in the offer. Approximately a further $18.6 million (before costs) is projected to be added to the Sovereign Cloud’s equity raise.

The proceeds will be used towards investing in customer growth, scaling AUCloud, and the research and development of new features. The platform will also be rolled out to Brisbane, Melbourne, and Adelaide. This is expected to complement the new cloud platform’s existing presence in Sydney and Canberra.

Furthermore, Sovereign Cloud will spend more than half of its funds on working capital requirements during the period.

AUCloud currently has 48 employees located in Canberra, Brisbane and Sydney. The company’s resources are forecast to expand over the next 2 years to support revenue growth in Canberra and Sydney.

About the Sovereign Cloud share price

Over the past 12 months, Sovereign Cloud shares have moved in circles, particularly in the second half of 2021. The company’s share price is down 30% since this time last year, and hovering around 25% below year to date.

Sovereign Cloud presides a market capitalisation of about $40.67 million, with more than 52.48 million shares on its books.

The post Why is the Sovereign Cloud (ASX:SOV) share floating 27% higher today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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