Sweden’s leading equity research house SEB Equities has published its thought on Fingerprint Cards ahead of the CMD, which is taking place in Stockholm tomorrow, December 9th.
Here’s what their analyst Victor Höglund has to say:
Thoughts ahead of CMD
· Guidance: we estimate mid-point 2017 sales guidance above SEK 9bn (SME consensus at SEK 8.6bn, SEB at SEK 9.1bn). We assume EBIT guidance of at least “above long term ambition of 35%” – we estimate 37% (current run-rate 41%). We expect the company to retain its 2018 target (sales cagr 2015-18 of 60% = SEK 11.9bn, >35% margin).
· Our reasoning around 2017:
o We expect that the addressable smartphone market is growing enough to support strong growth in 2017, despite falling ASP and increasing competition.
o We believe that the price pressure on current products will be partly offset by new (under glass) sensors, which are more expensive. We expect the company to highlight that smaller sensors have higher margins but lower ASP. Hence, the product mix in 2017 will effect both margins and sales but the gross profit should be good on both. We have assumed that lower value sensors will increase in share of total sales in 2017 which will negatively affect ASP but help hold up margins.
o The three main swing factors for 2017 are: market penetration, market share and ASP in the smartphone segment. Reasonable scenarios on these parameters results in 2017 sales between SEK 8.5bn – SEK 10.5bn.
· We expect more detail on new verticals and the company to possibly show a “smart card” and new sensors related to cards (mentioned above) and adjacent verticals.
· The market does not believe in the company’s 2018 targets and expects market share to drop rapidly in 2017, and no success for the company in cards in 2018 and beyond.
· Our 2017 estimates are some 6% ahead of median SME consensus on sales and some 9% on EBIT/EPS.
· The market is 20-25% below the company’s 2018 targets on sales and EBIT, and we believe the company could show products and partnerships to close some of the gap but also give more details on the strategy and market segments in the CMD which will drive growth beyond 2017.
· We think risk reward is very favorable at current trading levels and rate FPC BUY
· Fingerprint Cards trades at a 30-50% discount to peers on PER and EV/EBIT.