DNB Markets - Verisec: Changing its stripes
Verisec continues to demonstrate early success in building its Freja eID ecosystem, which is set to benefit from continued digitalisation tailwinds accelerated by Covid-19 and an increasingly eID-focused organisation. However, we await further signs that it can successfully monetise its ecosystem into paying customers, and have thus cut our 2020–2022e sales by 24%, and our fair value to SEK60–110 (70–110).
Q2 review. Sales of SEK6m beat our forecast of SEK4m (28% sales fall YOY), mainly related to its fulfilment services, while the EBIT loss of SEK10m was 41% higher than we expected. With a SEK13m cash position at end-Q2, a SEK24m unutilised credit facility, and a SEK14m vendor loan, although we expect an average quarterly burn rate of SEK4m by end-2021, we do not believe a recapitalisation is needed.
Road ahead. We find the name change to Freja eID encouraging given the momentum in its eID ecosystem, which could shift investors’ perception of it to a high-growth eID-focused investment case. We also believe the value proposition for both services and end-users has accelerated, driven by the demand for secure remote workforce identity systems, as well as a growing need for secure digital processes to penetrate the Nordic addressable market opportunity of ~SEK3bn. Competitively, there is still a key differentiation for Freja eID based on technology, pricing and user-friendliness.
We have cut 2020–2022e sales by 24%, on a softer view of short-term monetisation from Freja eID, although KPIs such as users (we estimate ~35,000) and relying parties (~200) are tracking according to plan, aided by the integration with Office 365 and Azure, Organisations eID and personal eID. Management’s tone was positive on the rate of its cost savings of SEK15m in 2020e and SEK30m in 2021e, and we believe the SEK48m divestment of its legacy businesses should result in a leaner and more focused organisation, but for now we prefer to take a prudent approach.
We see a SEK60–110/share fair value, corresponding to 2022e EV/sales of 4–7x, while we believe historical financial disclosure remains poor. Should we gain further evidence of Freja eID user adoption, we could see meaningful upside potential to our fair value, given a long runway for 40%+ sales growth and attractive scalability.
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Joachim Gunell | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: joachim.gunell@dnb.se | www.dnb.no