Precise Biometrics: Path to sustainable profitability clearer - ABG
Algo likely to start recovery by the end of '23e
'23e-'25e sales down 12-6%
'23e-'24e EV/EBITDA of 30-5x
Q2'23 in brief
Q2'23 came in somewhat below our expectations on sales but in line with our expectations with respect to EBITDA, as the company continued to exert solid cost control. While the Algo segment continued to be adversely impacted by overstocked OEMs, the Digital Identity segment continued to successfully execute on the commercialisation agenda. Currently, the Digital Identity segment has an ARR of SEK 17.8m, which is a relatively low base compared to the Algo segment. However, once the sales channels and partnerships are fully established, the company can benefit from scale in a more tangible fashion.
Estimate changes
We cut Q3'23e sales by ~17% to SEK 20.5m and lower EBITDA by ~25% to SEK 0.9m. Moreover, we cut '23e-'25e sales by 12-6% to ~SEK 83m and EBITDA by 18% to ~SEK 2.1m on the back of the report. Global smartphone shipment data indicates that the Algo recovery will likely not come in Q3'23e, but rather Q4'24e or perhaps slightly later, and we are therefore somewhat more cautious on our Algo sales estimates. That said, when the smartphone OEMs have successfully destocked and are phasing in new models, we can expect a rather rapid recovery. The Digital Identity ARR is growing sequentially, while the quality of the Digital Identity revenue has increased, as it is now increasingly recurring rather than on-premise/point-in-time. In the long-term, the Digital Identity segment will diversify the company's cyclical risks related to the Algo segment and should lead to more predictable cash flow streams.
Implied valuation
Based on our revised estimates, the company is trading at a '23e-'24e EV/EBITDA of 30-5x, and on the Digital Identity ARR, alone, the company is trading at an EV/ARR of ~3.5x.
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