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Fingerprint – some thoughts after year-end report

Yesterday, Swedish biometrics specialist Fingerprint Cards (FPC) reported its FY 2016 report showing a year-over-year revenue increase of 129% to SEK 6,64bn. Operating profit amounted to 2,6bn which implied an operating margin of 39%. EPS ended up at SEK 6,50, versus 2,52 the prior year. That´s quite impressive numbers.

FPC numbers are even more impressive when compared to one of its biggest rivals, Synaptics ($SYNA). Synaptics recently reported its fiscal Q2 2017 report showing a decline in revenues for the quarter ended in December by 2%. Non-GAAP net income during the period decreased by 11 percent compared with the same period one year ago.

FPC is the clear market leader for fingerprint sensors for smartphones with a market share of around 55-60% of the addressable market (i.e. excluding Apple). During 2016, OEM-customers have launched almost 140 mobile devices containing FPC sensors. The product portfolio has been broadened and differentiated and the company offers products for smartphones and smartcards, as well as for PCs and embedded systems. Furthermore, the company recently announced the acquisition of Delta ID, a leading supplier of iris recognition technology, thereby expanding its reach in biometrics. The price tag is around SEK 938m.

Says FPC CEO Christian Fredrikson: “Through the acquisition we will be able to provide multi-modal solutions to the market, combining iris recognition with our fingerprint sensors. Hence, the products will be both more secure and user-friendly. The acquisition is consistent with our strategy to expand and maintain our leadership position within biometry, from our leading position within fingerprint sensors for smartphones.” The acquisition also adds Samsung Mobile to the already extensive customer list of FPC.

Thanks to a strong operating cash flow of SEK 1,1bn during 2016, FPC was able to spend more than a SEK 1bn to buy back company shares. By the end of December 2016, FPC had a cash position of slightly below SEK 1,2bn, with no long-term liabilities. On top of the acquisition of Delta ID, the Board of Directors has therefore proposed a dividend of SEK 2 per share for the 2016 fiscal year. At the current share price of around SEK 50, this corresponds to a dividend yield of 4%.

The proposed dividend will reduce the company´s cash position by slightly more than SEK 625m.

Over the last 12-months, the FPC share price has declined more than 40% and the company currently has a market capitalisation of SEK 16bn and an Enterprise Value of SEK 15,8 (assuming the Delta ID acquisition is paid in cash, which would reduce the company´s net cash position to roughly SEK 225m). On trailing 12-months earnings, the share is currently trading at a p/e-ratio of 7,7.

We believe that the discrepancy between the operational performance of the company and the performance of its share price has not been gone unnoticed by market players, be it competitors, customers etc. It is in the best interest of any player considering a bid for FPC to move ahead with its plans before the dividend is paid out. After all, SEK 625m will leave the company´s balance sheet once approved at the AGM on April 20th. That´s not too far in the future and we are looking forward to some exciting weeks ahead.

Nordic Investor

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