Fingerprint Cards – Now Resting On Three Legs

Posted: 3 November, 2014 in Fingerprint Cards, Published Investment Calls

All credits to Se7en, the author of this article. (Se7en is a true C.E.S.I. friend and also a top rated C.E.S.I. partner)

Introduction

Why do I stress that today, an investment in Fingerprint Cards (FPC) will be a much lower risk investment compared to two years back in time? The short answer is simply that the company now has stable incomes from both the Chinese banking sector and the smartphone market. In 2015, another income will be added – Biometric Contactless Payment Cards. Then, Fingerprint Cards will have incomes from three different areas and will be as stable as a tripod.

The tripod…

The banking sector – the annual income is around 100 million SEK. The Chinese banks are constantly renewing their equipment and since China is a big country they also have many banks, therefore this income should be considered relatively safe.

The smartphone market – FPC already have incorporated its swipe sensor 1080 into more than 30 marketed devices (phones and tablets). However, during 2014 the desire for the more convenient touch type sensor has increased ever since Apple’s release of iPhone 5S in the end of 2013. Due to the fact that Apple has its own supplier for their fingerprint sensors (AuthenTec), the Android market players now have to find alternate sources for its fingerprint sensors for smartphones, tablets and more. Currently, there is only a handful suppliers of fingerprint sensors, e.g. FPC, IDEX, Synaptics, NEXT, EgisTec and Goodix, but so far, only Fingerprint Cards has successfully managed to incorporate a touch sensor into a smartphone that also has reached the market.

The first release was Huawei Mate 7, which retrieved exceptional attention for its very convenient touch sensor 1020. The sensor allows the user to register  5 fingers, it tolerates wet fingers and it is also activated in a 360 degree fashion. In addition, it is really fast. in fact, it is faster than the Apple TouchID. Apart from unlocking the device, a main fingerprint sensor application is pictures and safer storage of pictures. The fingerprint sensor can also be used to verify Alipay payments. If the device is temporarily used by a guest, a special guest mode protects the original users private files and pictures. Prior to the launch of Huawei Mate 7, Huawei estimated that the sales will be roughly 3 million units of Mate 7, which is probably a very low estimate considering that Mate 7 has retrieved excellent reviews. The price per sensor is approximately 5 USD.

For further information about Huawei Mate 7, see this review:

http://www.androidpit.com/huawei-ascend-mate-7-review

Very recently, another smartphone was released that utilizes the convenient FPC technology – Oppo N3. This smartphone not only includes the nice features seen in Mate 7, but also includes a motorized 16 MP camera that can be controlled by the fingerprint sensor. In Oppo N3, we see that the 33% smaller fingerprint sensor 1021 can be successfully fitted both on the front and the back of a smartphone.

For more information, see this review:

http://www.gsmarena.com/oppo_n3_is_official_with_a_16mp_motorized_camera-news-10072.php

Upcoming releases:

On May 15 2014, FPC announced a new Design Win for 1020 touch sensor for the flagship smartphone from Chinese Top 3 smartphone OEM. Currently, Huawei, Xiaomi and Lenovo are Top 3 in China.

On July 8 2014, FPC announced the Design Win and initial ramp order for FPC1021 touch sensor for flagship smartphone from Asian OEM. Due to lack of more information this can practically be any Asian OEM.

On September 22 2014, FPC announced the Design Win of its first DW for FPC1150 from Tier 1 smartphone OEM and a DW for FPC1021 from the global top 5 Smartphone OEM. The 1150 Design Win may be Samsung Galaxy S6, since this phone has a home-button with a rectangular format and the rumour has it that this phone will be presented at the Mobile World Congress on March 2-5. The 1021 Design Win could be e.g. Lenovo or LG.

All of this is of course merely educated guesses, but they are at least plausible.

The smartphone market will most likely yield more than 1 billion SEK for FPC in 2015, as projected by Jörgen Lantto (CEO of FPC). FPC also have all necessary global IP (Intellectual Property) covered.

Biometric Contactless Payment Cards – One year ago FPC announced the collaboration with Zwipe, which is a company focussing on producing safer payment cards (by adding a fingerprint sensor onto the cards). A few weeks back, Zwipe made their collaboration with MasterCard official. FPC will therefore be a third-party supplier for this upcoming enormous global market. FPC will probably deliver several hundred million sensor only for this market in the upcoming years and this will most likely give incomes in the order of several billions SEK each year. Right now, FPC has the pole position in this market due to the extremely low-power consuming sensors. In fact, this will be essential in the feature due to the fact that cards will work without a battery. Geniusly, the energy will be supplied by the payment terminal in a contactless regime. Hopefully, the new generation of cards will reach the market already in 2015. For further information about the Zwipe/MasterCard collaboration, see the press release and the Youtube video below:

http://newsroom.mastercard.com/press-releases/mastercard-zwipe-announce-launch-worlds-first-biometric-contactless-payment-card-integrated-fingerprint-sensor/

http://www.youtube.com/watch?v=zqbKhI1QWU4&feature=youtu.be

Revenues are constantly growing

Year by year

2012: 10 million SEK

2013: 95 million SEK

2014: 230-330 million SEK

2015: >1 billion SEK (estimated)

Quarter by quarter (2014)

Q1: 18.4 million SEK

Q2: 44 million SEK

Q3: 66 million SEK

Q4: 100-200 million SEK

The trend is clear – the revenues are constantly increasing over time.

Some calculations to help understand the potential value of FPC.

Stock price = P/E number*sales number*EBITDA/Number of shares

Example 1: 20*1 billion SEK*20%/55 million = 73 SEK/share

Example 2: 25*1 billion*25%/55 million = 114 SEK/share

Example 3: 30*1 billion SEK*30%/55 million = 164 SEK/share

A quick and dirty rule of thumb (Very cautiously calculated): 1 billion SEK sales will give a stock price of 100 SEK/share. 1.5 Billion SEK sales equals 150 SEK/share, 2 Billion SEK sales equals 200 SEK/share and so on.

About P/E number estimation: For a fast growing and very promising company, the P/E number is normally substantially higher due to that sales is predicted to increase dramatically compared to the average mature company.

Thus and in these cases, the markets´ intense interst often results in a P/E of 20 – 300 (!).

EBITDA estimation: FPC predicts an EBITDA of around 50% for the next few years. In the calculations above, I have chosen very low EBITDA values to avoid over-estimation of the share price.

Currently, FPC has 55 million shares, but this number might increase to 60-70 million after option dilution within the next few years.

FPC estimates that the 2015 sales will exceed 1 billion SEK, BUT this does not take the Biometric Contactless Payment Cards into account. This market can, by its own, result in an another 1 billion SEK of revenue, i.e. more than 2 billion SEK / year in total. This should lead to a ~100% increase of the share price.

Conclusion

The current potential of FPC in combination with a very appealing share price of approximately 40 SEK/share as of November 2014, makes this a clear cut case. This results in a long-term buy recommendation as the market is still growing with all that entails such as smartphone OEMs and the Biometric Contactless Payment Cards market. The Se7en and C.E.S.I conclusion is a +100 SEK shareprice within the next 12 months (low estimate).

Best regards Se7en and C.E.S.I.

The authors, Se7en and Cutting Edge Science Invest, are Fingerprint Cards share holders. Cutting Edge Science Invest can not guarantee, or take into  accountability, the content of truth and accuracy of the information in this article/post.Thus, Cutting Edge Science Invest requires that a possible reader gather complimentary information if any type of investment in the company described above is considered. Cutting Edge Science Invest provides personally biased information and at best also “general information and opinions”. The article/post does not contain professional investment advice. 

Comments
  1. Paul Larborn says:

    Very good article.
    I will just remind that FPC does not predict EBITDA to be 50% for the coming years but predict a gross margin of at least 50%.From this gross margin you deduct the fixt costs wich i supposed
    to be around 200 msek per year.Then you will have the EBITDA margin.
    Best Regards

  2. Thank you Paul for the excellent feedback! Best regards, C.E.S.I.

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