DNB Markets - Freja eID Group: More of the same
Freja eID’s Q1 results provided continued ammunition to support both our positives and cautions, having now beaten our user intake forecasts for seven consecutive quarters, although higher than expected FCF burn in a market increasingly focused on short-term profitability remains a challenge. We continue to believe Freja eID is well-positioned to capitalise on its market opportunity, although an inflection point in its revenues could take a couple of quarters to play out. We have lowered our fair value to SEK12–17 (17–25), having cut our 2022–2023e net sales by ~25%.
More of the same. User numbers rose 309% YOY, reaching 581k (6% of Sweden's population), interactions amounted to 1.9m+ (343%+ YOY), 423 'relying parties' showed 48%+ YOY growth, and ARR reached 4.6m (95%+ YOY). Group Q1 sales were SEK6.0m, equivalent to 5% YOY growth (Freja eID: 122% YOY growth, Fulfilment: -9%) as Organisations eID and Physical eID experienced strong traction. Although we are encouraged that Freja eID's opex has remained broadly flat over the past year, the FCF loss of SEK11.9m (corresponding to an annual FCF burn of SEK48m) means that we now expect a SEK30m recapitalisation in Q3 2022.
Our 2022–2023 net sales forecasts have been cut by 30–22% as Freja eID net sales continue to ramp up more slowly than we expected. We believe it makes sense for management to prioritise building its eID ecosystem (adding ~1k users per day), and as focus now shifts to monetising its growing ecosystem, we expect EBIT break-even six quarters from now. Recent Mobilt BankID disturbances highlight how fragile Sweden's digital ecosystem is given BankID's monopoly-like market position (~77% of the population uses it), which highlights the importance of Freja eID as the natural complement with a more sophisticated eID solution, in our view.
Fair value cut to SEK12–17 based on 2022–2023e SOTP, DCF and peer multiples. Our view remains that the long-term growth opportunity for Freja eID is substantial, but in a market increasingly focused on short-term profitability, investors will have to own the stock with duration. We calculate that Freja eID's total investment in its technology platform corresponds to ~SEK10/share.
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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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