smart eye - redeye · 8/26/2019 · included the last two wins in europe/japan. thus, the mobileye...
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Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]
Update
Equity Research 26 August 2019
KEY STATS
Ticker SEYE.ST Market First North
Share Price (SEK) 90.5 Market Cap (MSEK) 1368 Net Debt 19E (MSEK) -165 Free Float 84 %
Avg. daily volume (‘000) 1
BEAR BASE BULL 77.0
153.0
212.0
KEY FINANCIALS (SEK)
2017 2018 2019E 2020E 2021E 2022E Net sales 43 51 64 128 296 525 EBITDA -31 -42 -72 -43 79 203 EBIT -42 -56 -89 -65 55 179 EPS (adj.)
2017 2018 2019E 2020E 2021E 2022E EPS (adj.) -4.2 -4.8 -5.9 -4.2 3.6 11.6 EV/Sales 11.3 11.2 18.8 10.1 4.3 2.1 EV/EBITDA -16.0 -13.4 -16.7 -29.8 16.0 5.5 EV/EBIT -11.7 -10.1 -13.6 -19.8 23.0 6.3 P/E -11.7 -10.4 -15.4 -21.3 25.4 7.8
ANALYSTS
Viktor Westman [email protected] Havan Hanna [email protected]
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Smart Eye
In the playoffs We have entered the playoffs – everything is to be settled in a few quarters time
Smart Eye made a good point in the earnings report around its DMS market being driven by
structural growth from regulation and Euro NCAP, as opposed to the shaky, cyclical
automotive industry as a whole. Smart Eye added that this is of course not just related to
China but all other regions as well. We see lots of industry activity from tier-1s and OEMs,
although the summer has been quiet in terms of new deals. This only means that the
outcome is getting closer and in a couple of quarters, the DMS war will essentially be over.
By the time the smoke from the tenders clears during next year, we believe that all of the
top 10 OEMs that together produce almost 70% of all cars, will have chosen their partners.
We believe Smart Eye is well-positioned with a wide tier-1 network, but as it is tricky to pin
down exactly who works with who we have not speculated on coming program awards in
this update.
SEK 6bn in RFQs remaining – then all major OEMs will have decided
The total platform value of the ongoing RFQs is about SEK 5.7 bn, not SEK 10 bn. This is
because Smart Eye has already won contracts worth of SEK 2bn for the Korean OEM and
SEK 2.3 bn for the combined contract from the two Japanese/European OEMs. We believe
the RFQs that are about to be finalized are from e.g. Volkswagen, Volvo, Honda and PSA.
Toyota is also procuring, but given its close ties with Denso (incl. Fotonation) we believe
this is a bit of a long shot. We still believe the tier-1 nominations could happen this year,
although it looks like these deals will trickle down to the tier-1s (Smart Eye) in 2020.
Shares are down -29% from the top – we keep our valuation
Shares are down -17% during the last three months and -29% from the top in April. While
this is somewhat expected since the SEYE stock is completely news driven (and there have
not been any news), we see no changes in the fundamentals of the business. We reiterate
our base case of SEK 153 per share. Our bear and bull scenario amounts to SEK 77 and
SEK 212 respectively. If Smart Eye would lose the Volkswagen procurement, we believe our
bear scenario of SEK 77 could be actualized, but in relation to todays’ share price of SEK 88
we think most of the uncertainty is on the upside.
Smart Eye Sector: Autotech
REDEYE RATING
SEYE.ST
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REDEYE Equity Research Smart Eye 26 August 2019
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We are in the playoffs now
Still SEK ~6 bn in contracts to be awarded With the recent contracts announced in conjunction with the Q1 report (one major European
and one major Japanese OEM), Smart Eye’s awarded design wins are stil SEK 1.1 bn from
eight customers and there is another SEK 1.5 bn in expected orders. Thus, there is no
changes in the table of the estimated value of the contracts (see below). In our previous
update, it said SEK 1 650 for the additional value of the platform. We had mistaken the further
potential of SEK 350m for 500m as we misunderstood the last press release that read “the
potential of further design wins on the existing platform is estimated at 500 MSEK”.
In our last update, we noted that the ASPs of the Japanese and European OEM contract seem
to be EUR 4 – i.e. below the EUR 5-10 guidance, but Smart Eye states that prices are higher
than EUR 4. We therefore assume the company has made conservative calculations of the
future value of the contracts, in order to under-promise and over-deliver.
4.3 million commercial vehicles sold in China in 2018 Smart Eye’s solution for the commercial vehicles in China will be ready in 2020, but the
company declined to comment if it is for the first part or late 2020. In 2018, about 4.3 million
heavy trucks, buses and commercial light vehicles were sold in China. A hypothetical price of
SEK 1000-2000 would mean a market size of SEK 4.3 - 8.6 billion, only for the new vehicles
per year. We assume the fine will cost more than the price of buying the DMS equipment,
which should allow for a high compliance. Last, Smart Eye also mentioned that the product
will primarily target China, meaning there might be other opportunities to pursue.
Design wins should pick up the pace ahead There was a typo in the English version of the Q2 report as it said 43 design wins. It had not
included the last two wins in Europe/Japan. Thus, the Mobileye curve (see next page) of 45
design wins for Smart Eye so far this year, is the same. We use dotted lines to illustrate the
year that it was announced that Euro NCAP would mandate DMS and AEB respectively. As
can be seen, this happened two years faster for Smart Eye, suggesting that we should se an
uptick in design wins during the next year, as the deadlines from EU and Euro NCAP
approach.
Estimated value of the design wins* (SEKm)
DW no. Value of DWs Additional value of platforms Value of DWs & platforms
1-17 375 450 825
18 100 400 500
19-23 200 300 500
24-25 50 n/a 50
26-29 125 n/a 125
30-43 150 n/a 150
44-45 150 350 500
Total 1150 1500 2650
* = Total sales are calculated over the full product life. We estimate a typical car lifetime to ~ 7 years. DW no. 2 & 17 are on the same platform as no. 19-23
The platform value of DW 1-17 was SEK 600m at first but has been adjusted after DWs 24-25 and 26-29 for existing customers were won
Source: Smart Eye, Redeye Research
REDEYE Equity Research Smart Eye SEYE.ST 26 August 2019
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New entrants in China – but Smart Eye stays the course Here are a few other various thoughts on what is going on in the DMS market:
1. We still see several meritless claims and malarkey, suggesting that Smart Eye is not
ISO 26262 compliant or that it would offer convenience DMS, as opposed to safety
DMS.
2. We believe main competitor Seeing Machines’ recent design wins for additional car
models for its German customer is related to BMW via Conti. This does not change
our BMW estimates for Smart Eye as we had expected and prepared for further wins
for Seeing Machines.
3. There is an intensive news flow around new DMS partnerships in the industry, e.g.
SenseTime & Visteon, NXP & Momenta and a couple of Chinese partnerships for
Eyesight. We believe these announcements are about marketing and positioning for
specific tenders. For Smart Eye though, there is no focus at all on closing new
partnerships right now, as it has entered the playoff phase of the ongoing
procurements.
4. It is too early to see what the new partnerships in the industry will lead to, but
winning one car model is one thing and being able to deliver on the deal (hardware
with minimal power consumption etc.) is something else. This is especially true for
the entrants coming from other markets. Nevertheless, in a longer bargaining power
perspective, we see a risk that the new tier-2s in China could be used to put
downward pressure on Smart Eye’s prices, (regardless of how competitive the
options may be).
5. In the report, Smart Eye mentioned a strategic change. This just refers to the mass
market happening earlier than expected, which put a lot of pressure on investments,
recruiting of employees etc. Thus, Smart Eye maintains its strategic course with
hardware agnostic software and no in-house chip development etc. We believe this
is a wise choice given how fast the market is moving. GPUs may generate more heat
than FPGAs, but there is no law of nature saying this cannot be solved.
The Mobileye curve: Accumulated, total n.o. design wins
Source: Mobileye, Smart Eye, Redeye Research
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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8
Mobileye Smart Eye
REDEYE Equity Research Smart Eye SEYE.ST 26 August 2019
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Final decision awaiting in EU & Euro NCAP finishing the protocols Euro NCAP’s work with the required specs is not fully finished. We expect protocols come
next year. According to Smart Eye, this is beneficial for the company as customers go for
proven quality if there is the slightest uncertainty. EU’s corresponding requirements are still
awaiting the final decision, but as previously mentioned, this is just administrative stuff. We
reiterate our statement from our last update: “The new EU regulation means that all new car
models in EU must have driver monitoring in 2022 and by 2024 car OEMs cannot sell one single
car in the EU without DMS. In the language of the slow-moving automotive world, this means
tomorrow, i.e. all car OEMs are in a hurry to procure DMS.” As no new contracts were awarded
since our last Q1 update this is still the case, and even more so.
Q2: AS grew 46% y/y as the take-rate continued to surprise on the upside The higher operating loss in Q2 was as expected. Smart Eye mentioned increased costs in
China. However, sales came in -11% below our estimates (see the table below). As mentioned
in our note, this was due to Research Instruments (RI).
RI sales amounted to SEK 5m as some orders were delayed into Q3, while Automotive
Solutions (AS) grew 46% and contributed SEK 7m (as indicated by the graph below), but the
report also stated that RI is an important part of the production programs in Korea and
Japan. Most notably, Smart Eye once again mentioned that while the license revenues are still
small the BMW take-rate was a bit higher than its internal expectations.
Smart Eye - Expected vs. Outcome
SEKm Q2´18 Q2'19E Outcome Diff
Net sales 11.0 13.9 12.4 -11%
EBITDA -13.6 -20.9 -20.5 0.4
EBIT -16.8 -25.0 -24.7 0.3
PTP -16.8 -25.0 -24.7 0.3
EPS, SEK -1.53 -1.77 -1.75 0.02
Salesgrowth -9.2% 26.7% 12.5%
EBITDA margin -88.1% -150.0% -165.4%
EBIT margin -108.3% -179.4% -199.3%
EPS growth 63% 15.3% 13.9%
Source: Smart Eye, Redeye Research
Sales per segment (SEKm)
Source: Smart Eye
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Research Intrsuments Automotive Solutions
REDEYE Equity Research Smart Eye SEYE.ST 26 August 2019
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Following the offering of SEK 200m, Smart Eye had cash of SEK 227m at the end of Q2. We
assume the burn rate will peak during 2019 as license revenue from the won program is
about to ramp. The operating cash flow before working capital amounted to SEK -47m in
H1’19 and CAPEX was SEK -22m during the same period.
REDEYE Equity Research Smart Eye SEYE.ST 26 August 2019
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Financial estimates Our sales estimates are lowered by 2-7% for years 2019-2021 as there seems to be delays
related to the 13 design wins of the European OEM (see the table below). Important to note is
that these delays are due to external factors and that Smart Eye has not lost anyone of these
design wins. Furthermore, we raise our cost estimates related to the Chinese commercial
vehicles.
Sales estimates Our Automotive Solutions estimates are summarized below:
For 2021 we expect Smart Eye to deliver technology to about 2 million cars, which can be
compared to the company’s previous guidance of a total market of 3-5 million cars in 2021.
Forecast adjustments
(SEKm) 2019E 2020E 2021E
Sales Old 69 131 314
New 64 128 296
% change -7% -2% -6%
EBIT Old -84 -57 74
New -89 -65 55
% change 5% 14% -26%
Profit before tax Old -84 -57 74
New -89 -65 55
% change 6% 14% -26%
Earnings per share Old -5.56 -3.71 4.80
New -5.88 -4.24 3.56
% change 6% 14% -26%
Source: Redeye Research, Smart Eye
Sales assumptions: Automotive Solutions (AS)
(SEK million) 2019E 2020E 2021E
Total AS net sales 32 87 248
whereof licenses 11 49 170
whereof service & other revenue 20 38 78
AS net sales growth (%) 45% 176% 185%
Automotive license volumes (million) 0.12 0.57 2.03
ASP (SEK) 91 86 84
Source: Redeye Research
REDEYE Equity Research Smart Eye SEYE.ST 26 August 2019
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Our RI estimates are summarized below:
Earnings estimates Our earnings estimates and sales breakdown are the following:
Quarterly estimates The sales pick-up in Q3 is not so much related to licences but more the delayed orders in RI.
For Q4 we expect a 47% growth driven by licenses related to especially BMW.
Sales assumptions: Research Instruments (RI)
(SEK million) 2019E 2020E 2021E
Total RI net sales 33 41 48
RI net sales growth (%) 33% 25% 17%
N.o. systems sold 65 75 88
TAM (SEKm) 741 815 896
Market share (SEKm) 4% 5% 5%
ASP (SEKm) 0.5 0.5 0.5
Source: Redeye Research
Earnings estimates
(SEK million) 2019E 2020E 2021E
Total net sales 64 128 296
Net sales growth (%) 38% 99% 132%
Employee costs -92 -120 -152
Avr. n.o employees 135 165 195
Other OPEX -76 -82 -86
Total depreciation -17 -20 -23
Capitalized work for own account 32 30 20
EBIT -89 -65 55
EBIT (%) -138% -51% 19%
PTP -89 -65 55
EPS (SEK) -5.88 -4.24 3.56
Source: Redeye Research
Quarterly estimates (million SEK)
SEKm 2017 Q1'18 Q2'18 Q3'18 Q418 2018 Q1'19 Q2'19 Q3'19 Q4'19 2019
Net sales 43.2 9.6 11.0 15.2 15.0 50.8 11.7 12.4 18.0 22.0 64.1
Sales growth (%) 6% 26% -9% 18% 42% 18% 22% 12% 18% 47% 26%
EBIT -41.5 -13.8 -16.8 -9.8 -15.6 -56.0 -22.2 -24.7 -20.6 -21.1 -88.5
EBITDA -30.6 -11.0 -13.6 -6.2 -11.4 -42.3 -18.7 -20.5 -16.3 -16.6 -72.0
PTP -42.0 -14.0 -16.8 -9.8 -15.7 -56.3 -22.3 -24.7 -20.7 -21.2 -89.0
EPS (SEK) -4.2 -1.3 -1.5 -0.8 -1.2 -4.8 -1.7 -1.7 -1.4 -1.4 -5.9
EBIT margin (%) -96% -93% -108% -49% -74% -110% -190% -199% -114% -96% -138%
EBITDA margin (%) -71% -74% -88% -31% -54% -59% -103% -99% -62% -54% -75%
EPS growth (%) 179% 36% 63% -3% -20% 11% 33% 14% 68% 17% 29%
Source: Redeye Research, Smart Eye
REDEYE Equity Research Smart Eye 26 August 2019
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Investment Case • In pole position within eye tracking for mandated driver monitoring
• Impatient & short term focused stock market
• Design wins to move the share price
In pole position within eye tracking for mandated driver monitoring
Not only due to the (semi) autonomous cars but more actually because of increased traffic safety focus and Euro
NCAP's decision to mandate driver monitoring, the market for driver monitoring systems (DMS) is about to explode
with an expected CAGR volume growth of about 200 percent during 2017-2025. This expected growth is a known
fact for the stock market but we believe many do not understand Smart Eye’s strong positioning. Smart Eye has
devoted 18 years of 100 percent focus to and investments in this very niche (whereof 16 years of actual sales). The
company is in pole position with an unmatched 45 design wins for 8 customers. As for barriers to entry, the
technology needs to cope with e.g. changing light conditions, tunnels, sunshine, darkness, vibrations etc. and at the
same time never fail. Competition is therefore basically limited to one other player and the customers’ own
solutions. However, we believe it is unlikely that the customers in the long run are willing to put up with all
investments and maintain the focus necessary for in house sourcing. Smart Eye states that, being platform
independent and hardware agnostic, it has a competitive edge as its technology can be locked late in the
development process.
Impatient & short term focused stock market Smart Eye’s first design wins with new customers are in general worth a lot more than meets the eye as they in
general are platform based. The platforms should usually (although not automatically) yield additional new car
models for every year over the platforms’ lives of about 10 years. For Smart Eye this creates a very foreseeable and
stable revenue stream for many years to come as the large switching costs provide solid barriers to entry. The
stock market however, as always, only sees the coming few quarters, meaning significant potential for patient, long
term investors.
Design wins to move the share price We expect a steady news flow going forward with design wins from already won procurements as well as RFQ’s
worth SEK 6 billion in progress for 2019, which should drive the share price.
REDEYE Equity Research Smart Eye 26 August 2019
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Valuation
Bear Case 77.0 SEK Base Case 153.0 SEK Bull Case 212.0 SEK The main differences in our bear case compared to our base case scenario are the following. In our reasonably pessimistic scenario we expect a 10 percent lower take rate (DMS penetration) growth across the board and a slower volume growth of 64% in Automotive Solutions (compared to 75% in our base case), which is related to delays in legislation or setbacks or in the work of the NCAP organizations meaning a slower adoption rate. We believe that Smart Eye in a bear case still can defend its solid position and existing customers, with the exception of BMW. We see a decent market share of 25% in China but we assume Smart Eye's overall win rate drops to 25% (remember our TAM is lower so in terms of total market it is closer to 15%), meaning only about 60 % of the volumes in our base case, i.e. 14 million. All in all, the factors mentioned above mean a total sales CAGR growth of 33% during 2019-2028. As for the fixed costs we expect Smart Eye to hold back on investing as the market breakthrough is delayed, meaning the number of employees will only total 195 in 2025, which still together with a 21%CAGR growth in other OPEX translate to an EBIT margin of about 30% in 2021. We expect that the EBIT could stay above 30% until 2027 and then reach 20% as a long-term, sustainable EBIT margin.
Our base scenario (base case) is based on the following assumptions for 2019-2028. A discount rate of 11.1% is used in all three scenarios In our base case we assume a CAGR volume growth for Automotive Solutions of about 75 percent leading up to about 24 million licenses, which we believe is equivalent to about a third of the total DMS market and about 40% of our TAM of 60 million cars (excl. Toyota, Mitsubishi, Mazda, Iran OEMs and all of Seeing Machines existing end customers besides BMW) which should be compared to the company's target of 40 percent on a likely much higher TAM. We assume that existing customers can account for about 56% of the volumes. In addition, we assume that Smart Eye can win 40% of the Chinese market and 50% of Volkswagen, Suzuki, Honda, PSA, Tata and Mahindra. Even though Smart Eye has a competitive offering and competition will remain limited we believe that its bargaining and pricing power against the huge tier 1 players are rather limited. We assume the ASP will decrease by a CAGR of 6% per year (faster in the beginning). In Research Instruments we assume Smart Eye can grow 11%, in line with the market and thus keep its current market shares of 4-5 percent. All in all, the factors mentioned above mean a total sales CAGR growth of 41 percent during 2019-2028. As for the fixed costs we expect the number of employees to exceed 205 in 2022, which together with a 31 percent CAGR growth in other OPEX translate to an EBIT margin of around 35 percent in 2022 (in line with Mobileye). We expect the EBIT margin to exceed 40% in 2023. The long-term, sustainable EBIT margin is exxpected to b2 25%.
The important differences in our bull case compared to our base case are the following: In our reasonably optimistic scenario we assume 10 percent faster growth in take rate penetration as in our base case, driven especially by standard fitment in mid class and in China where Smart Eye maintains a strong positioning, meaning close to 29 million licenses in 2028. We also expect Smart Eye to fight back on BMW, meaning it will capture about half of the volumes. We expect a 50% win rate in China and 60% for non-Chinese OEMs (again this is on our lower TAM of 60%). The later can in essence can be done by winning Volkswagen and that would cement Smart Eye's position as the king of DMS. As for Research Instruments we expect that Smart Eye in bull case can grow faster than the market (18%) and increase its market share from 4 % to 10 %. All in all, the factors mentioned above mean a total sales CAGR growth of 45%during years 2019-2028. As for the fixed costs we expect Smart Eye to invest more in additional opportunities (most notably retrofit systems for Chinese commercial vehicles) encouraged by its success, meaning the number of employees could reach 210 in 2022, which together with a 41 percent CAGR growth in other OPEX translate to an EBIT margin of 37 percent in 2022. We expect that the EBIT margin could stay above 40% for a few years and then reach 30%as a long-term, sustainable EBIT margin.
REDEYE Equity Research Smart Eye 26 August 2019
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Catalysts Design wins in China
We believe there are design wins overdue in China where Smart Eye's tier-1 partner has been selected and only
paperwork remains before Smart Eye is officially nominated.
Design wins in general
The major key catalyst in general is won contracts from the many RFQ’s worth in total SEK 10 billion, which should
drive the share price.
REDEYE Equity Research Smart Eye 26 August 2019
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Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated
on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.
People: 5
Smart Eye is governed by an owner operator as the co-founder is the CEO, which is positive in many ways.
Compensation is moderate and just. We especially like the tendency to include all employees in the stock option
programs, which indicates a healthy HR policy that could explain the relatively low employee turnover. The solid
growth trend during the years prior to the listing implies that so far investments have been savvy and execution
essentially flawless. Overall the Management score is hampered by Smart Eye's short period on the stock market
where e.g. there is not much history of Smart Eye's communication to the shareholders as a listed company. As
mentioned Smart Eye is governed by owner operators where the founding family (Martin & Mats Krantz) together
owns about 20 percent of the company. Overall, insiders in the Board as well as Management own a lot of shares
and keep on adding to their positions. The founding family really has put their money where their mouths are. Thus,
the ownership structure is in short very appealing. Our only concern is if there are enough financial muscles to back
up the Company should there be need for future supplementary investments.
Business: 4
Smart Eye is the market leader in a viable niche within driver monitoring that is expected to grow at a CAGR of about
200 percent until 2025, especially driven by autonomous vehicles and traffic safety. Following an 18 year focus in
automotive Smart Eye has established important relations with all potential tier 1 customers. Smart Eye's
automotive focus and the recurring software licenses together imply sticky and predictable revenue for the
foreseeable future. In addition, high barriers to entry mean limited competition. All in all, it is a great business.
Financials: 2
Our profitability rating is fully retrospective and requires consistent, positive earnings. As Smart Eye is not profitable
at the moment it therefore cannot have a higher score for now. However, Smart Eye has a scalable business model
with low costs, meaning the stage is set for a gradually increased rating ahead should the Company keep up its
growth trend. The cash position and liquidity measurements of Smart Eye seems solid following a SEK 200 million
private placement in 2019. However, Smart Eye loses some points as the company at the moment has negative
earnings and cash flow. In addition, there is a risk in the cyclicality of the automotive industry as the customers
must be able to afford to fully embrace the new driver monitoring technology. However, the amount of customers
and their respective share of total sales is reasonably diversified.
REDEYE Equity Research Smart Eye 26 August 2019
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PROFITABILITY 2017 2018 2019E 2020E 2021E ROE -44% -46% -40% -27% 24% ROCE -41% -44% -39% -27% 23% ROIC -69% -81% -107% -61% 44% EBITDA margin -71% -83% -112% -34% 27% EBIT margin -96% -110% -138% -51% 19% Net margin -97% -111% -139% -51% 19%
Please comment on the changes in Rating factors……
INCOME STATEMENT 2017 2018 2019E 2020E 2021E Net sales 43 51 64 128 296 Total operating costs -74 -93 -136 -171 -217 EBITDA -31 -42 -72 -43 79 Depreciation -1 -2 -1 -3 -2 Amortization -10 -12 -16 -19 -22 Impairment charges 0 0 0 0 0 EBIT -42 -56 -89 -65 55 Share in profits 0 0 0 0 0 Net financial items 0 0 0 0 0 Exchange rate dif. 0 0 0 0 0 Pre-tax profit -42 -56 -89 -65 55 Tax 0 0 0 0 0 Net earnings -42 -56 -89 -65 55
BALANCE SHEET 2017 2018 2019E 2020E 2021E Assets Current assets Cash in banks 10 90 171 87 107 Receivables 19 25 31 59 123 Inventories 3 4 5 9 18 Other current assets 0 0 0 0 0 Current assets 32 120 206 155 248 Fixed assets Tangible assets 5 5 6 5 6 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 0 0 0 0 0 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 63 80 100 122 145 O non-current assets 0 0 0 0 0 Total fixed assets 69 85 106 127 151 Deferred tax assets 0 0 0 0 0 Total (assets) 101 204 312 282 399 Liabilities Current liabilities Short-term debt 0 0 0 0 0 Accounts payable 22 31 36 71 134 O current liabilities 0 0 0 0 0 Current liabilities 22 31 36 71 134 Long-term debt 6 4 6 6 5 O long-term liabilities 0 0 0 0 0 Convertibles 0 0 0 0 0 Total Liabilities 28 35 42 77 139 Deferred tax liab 0 0 0 0 0 Provisions 0 0 0 0 0 Shareholders' equity 73 169 270 205 260 Minority interest (BS) 0 0 0 0 0 Minority & equity 73 169 270 205 260 Total liab & SE 101 204 312 282 399
FREE CASH FLOW 2017 2018 2019E 2020E 2021E Net sales 43 51 64 128 296 Total operating costs -74 -93 -136 -171 -217 Depreciations total -11 -14 -17 -22 -24 EBIT -42 -56 -89 -65 55 Taxes on EBIT 0 0 0 0 0 NOPLAT -42 -56 -89 -65 55 Depreciation 11 14 17 22 24 Gross cash flow -31 -42 -72 -43 79 Change in WC 11 2 -1 3 -10 Gross CAPEX -31 -30 -38 -43 -48 Free cash flow -50 -70 -111 -83 21 CAPITAL STRUCTURE 2017 2018 2019E 2020E 2021E Equity ratio 73% 83% 87% 73% 65% Debt/equity ratio 8% 2% 2% 3% 2% Net debt -5 -86 -165 -82 -102 Capital employed 69 83 105 124 158 Capital turnover rate 0.4 0.2 0.2 0.5 0.7 GROWTH 2017 2018 2019E 2020E 2021E Sales growth 6% 18% 26% 99% 132% EPS growth (adj) 2,681% 13% 23% -28% -184%
DATA PER SHARE 2017 2018 2019E 2020E 2021E EPS -4.24 -4.80 -5.88 -4.24 3.56 EPS adj -4.24 -4.80 -5.88 -4.24 3.56 Dividend 0.00 0.00 0.00 0.00 0.00 Net debt -0.46 -6.56 -10.90 -5.34 -6.63 Total shares 9.91 13.15 15.12 15.29 15.46 VALUATION 2017 2018 2019E 2020E 2021E EV 488.0 567.1 1,203.5 1,286.6 1,265.8 P/E -11.7 -10.4 -15.4 -21.3 25.4 P/E diluted -11.7 -10.4 -15.4 -21.3 25.4 P/Sales 11.4 11.5 21.3 10.8 4.7 EV/Sales 11.3 11.2 18.8 10.1 4.3 EV/EBITDA -16.0 -13.4 -16.7 -29.8 16.0 EV/EBIT -11.7 -10.1 -13.6 -19.8 23.0 P/BV 6.7 3.9 5.1 6.7 5.3
SHARE INFORMATION Reuters code SEYE.ST List First North Share price 90.5 Total shares, million 15.1 Market Cap, MSEK 1368.3 MANAGEMENT & BOARD CEO Martin Krantz CFO Anders Lyrheden Chairman Anders Jöfelt ANALYSTS Redeye AB Viktor Westman Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Havan Hanna [email protected]
SHARE PERFORMANCE GROWTH/YEAR 16/18E 1 month -5.1 % Net sales 21.8 % 3 month -14.9 % Operating profit adj 46.0 % 12 month 86.2 % EPS, just 17.9 % Since start of the year 33.1 % Equity 91.9 %
SHAREHOLDER STRUCTURE % CAPITAL VOTES Mats Krantz inklusive närstående 10.6 % 10.6 % Martin Krantz 8.0 % 8.0 % Swedbank Robur Fonder 7.6 % 7.6 % Linda Jöfelt 6.6 % 6.6 % Anders Jöfelt 6.6 % 6.6 % Danica Pension 5.2 % 5.2 % Handelsbanken Fonder 4.6 % 4.6 % Aktia Asset Management 4.3 % 4.3 % Avanza Pension 3.5 % 3.5 % Nordnet Pensionsförsäkring 3.1 % 3.1 %
DCF VALUATION CASH FLOW, MSEK WACC (%) 11.0 % NPV FCF (2018-2020) -163 NPV FCF (2021-2027) 1128 NPV FCF (2028-) 1260 Non-operating assets 90 Interest-bearing debt -4 Fair value estimate MSEK 2311 Assumptions 2017-2023 (%) Average sales growth 65.7 % Fair value e. per share, SEK 152.9 EBIT margin 0.2 % Share price, SEK 90.5
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Redeye Rating and Background Definitions Company Quality
Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These
are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-
term earnings growth.
Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely
accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each
sub-category may also include a complementary check that provides additional information to assist with
investment decision-making.
If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for
each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that
ranges from 0 to 5 rounded up to the nearest whole number.
The overall score for each category is then used to generate the size of the bar in the Company Quality graphic.
People
At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business
is a significant part of understanding the long-term drive of the company. It all comes down to doing business with
people you trust, or at least avoiding dealing with people of questionable character.
The People rating is based on quantitative scores in seven categories: Passion, Execution, Capital Allocation,
Communication, Compensation, Ownership, and Board.
Business
If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage
customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing
the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.
The Business rating is based on quantitative scores grouped into five sub-categories: Business Scalability, Market
Structure, Value Proposition, Economic Moat, and Operational Risks.
Financials
Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the
financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial
performance and valuation. However, you only need a few to determine whether a company is financially strong or
weak.
The Financial rating is based on quantitative scores that are grouped into five separate categories: Earnings Power,
Profit Margin, Growth Rate, Financial Health, and Earnings Quality.
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Redeye Equity Research team
Management Björn Fahlén
Håkan Östling
Technology Team Jonas Amnesten
Henrik Alveskog
Dennis Berggren
Havan Hanna
Kristoffer Lindström
Fredrik Nilsson
Tomas Otterbeck
Eddie Palmgren
Oskar Vilhelmsson
Viktor Westman
Linus Sigurdsson (Trainee)
Editorial Jim Andersson
Eddie Palmgren
Mark Sjöstedt
Johan Kårestedt (Trainee)
Life Science Team Anders Hedlund
Arvid Necander
Erik Nordström
Klas Palin
Jakob Svensson
Ludvig Svensson
Oskar Bergman (Trainee)
Alexander Ribrant (Trainee)
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Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:
• For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date..
• An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any remuneration directly linked to such transactions.
• Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.
Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2019-08-26)
Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.
Rating People Business Financials
5p 10 8 1 3p - 4p 45 37 26 0p - 2p 24 34 52 Company N 79 79 79
CONFLICT OF INTERESTS
Westman owns shares in the company : Yes Havan owns shares in the company : No Redeye performs/have performed services for the Company and receives/have
received compensation from the Company in connection with this.