DNB Markets - Freja eID: Entering the next phase
With its 332k+ user base and 900k+ quarterly transactions, Freja eID’s app is one of the most popular in Sweden. As Freja eID is set to focus more on fine-tuning the commercial aspects of its growing eID ecosystem, we await further platform monetisation. We have cut our 2021–2022e net sales by 24–17%, and forecast a 64%+ revenue CAGR for 2020–2023. We have lowered our fair value to SEK20–35 (25–40).
Users rose 396% YOY, transactions 342% YOY, and services 64% YOY in Q3. We recognise that Freja eID is still in the early stages and has been one of the most downloaded apps in Sweden recently with 332k users (~4% of the adult population in Sweden). For its next phase of its strategy, we hope to see its users become more engaged in the app to drive monetisation as we calculate daily transactions per user is at ~0.03x versus BankID’s ~2.2x. Freja eID's management intends to focus on: 1) tailored campaigns; 2) increased communication with its users; and 3) adding more relevant services to improve utilisation. As we believe these measures will take effect only gradually, we have lowered our sales forecasts for 2021–2023 by 24–17%. With an end-Q3 cash position of SEK43m (excluding a SEK24m unutilised credit facility) and a LTM FCF burn of SEK47m, sales and operating leverage would have to improve to avoid recapitalisation in 2022e.
Milestone reached as Sweden’s pre-registration of eIDs to eIDAS was approved. This allows Swedish eIDs to expand operations to other European countries, and we view this decision as a validation of the strategy, having been peer-reviewed and approved by 20 EU countries. Initially this should enable Freja eID to be used by foreign public services, with a potential for new strategic partnerships over the coming years in a market that could be ~SEK4bn–10bn based on Freja’s SEK10–30 ARPU, in our view, although it will not be the only vendor in town as we note ~20 competing eID in the EU.
Relying parties signed in Q3 should fuel user activity, having added Apoteksgruppen and PostNord, which accepts Freja eID as a method of identification. For instance, PostNord has ~500k packages in circulation daily. Also, we like that it continues to focus on use cases where competing eID are not as strong today.
Fair value cut to SEK20–35. We are encouraged by user intake and the potential to build network effects and scalability of Freja eID, but believe demonstrated sales growth acceleration in eID (the main metric for future value creation) is what could move the needle on a group basis to merit a higher valuation.
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Best regards
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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
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