Freja eID tailwinds from remote-working environment, as organisations place increased focus on secure cloud processes (log-in, signing, and approval), as shown by the ~180 relying parties Freja eID has reached (250%+ growth YOY). We believe the rapid growth in relying parties stems mainly from the Microsoft partnership, which demands little configuration to go live in Office365 and Azure, but also from the DDoS attacks BankID has experienced recently. Still, the Services business will not be immune to Covid-19 and faces tough comparables in 2020e. Our app tracker suggests that Verisec has reached less than 0.5% (~20,000 users) of the addressable eID market in Sweden versus Mobilt BankID at 7.8m (worth ~SEK1.2bn).

Streamlined operations make Verisec more focused on Freja eID, after divesting its Freja UP (on-premises identity solutions) and HSM distributor business for SEK48m (suggesting a 2019 EV/Sales of 0.7x and EV/EBIT of 3.1x). Although we initially questioned the low price tag and terms of the transaction, the deal makes sense to us given the lack of synergies, while it allows Verisec to accelerate and focus its strategy on Freja eID, where we believe the true value-creation potential lies, and also lowers the financial risk (at this point we see limited risk of a recapitalisation given the SEK48m injection plus SEK23m unutilised credit facility). We forecast Verisec to reach EBIT-breakeven in 2022, although from a ~60% lower revenue base. The remaining businesses in Verisec will be Freja eID and its fulfilment services (mainly relating to physical security tokens), and Verisec expects to achieve cost savings of SEK15m in 2020, increasing to SEK33m in 2021 from the split, although we take a more prudent approach in our forecasts as we prefer to see signs of execution.

Fair value lowered to SEK70-110 (80-120). We estimate the remaining business should achieve a 45%+ sales CAGR to 2022e, which in combination with a 94% gross margin should allow for substantial scalability, thus warranting higher valuation multiples. Still, we believe financial disclosure for its remaining business is poor, adding uncertainty short-term. Our forecasts correspond to a 2022e EV/Sales of 2.4x.

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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