Fingerprint Cards

Research note


We update our estimates for Fingerprint Cards

We update our estimates following Fingerprint Cards Q3 report. Gross margin did not meet our high expectation and we chose to take down our estimates somewhat. We still believe there should be room for further improved gross margins in the medium term, though we take a somewhat conservative approach for now. Our long-term view remains intact and we keep our fair value range of SEK 65 to SEK 330 with a fair value of 209 in our base case. The share currently trades at an EV/EBIT multiple of 4.7 based on our revised FY 2017 estimates - in our view that implies a high degree of scepticism as well as an excellent investment opportunity for the long-term investor.

We take down our gross margin estimates for 2016-2018 by approximately one percentage point. As FPC is coming out with new products we suspect some additional optimization is needed to reach the same yield achieved for older products. Furthermore, a higher share of more complex solutions could potentially affect gross margins. Finally, in order to win Samsung, notorious for putting pressure on suppliers, we believe FPC would be willing to accept somewhat lower gross margins.

When it comes to revenues, we make adjustments in accordance with FPC's revised guidance for the remainder of 2016. For 2017, our lower revenue estimate is mainly due to FPC's comments regarding when the smart card market will take off. We now expect the smart card segment to only contribute marginally in 2017 and instead take off in 2018.

We have assumed a USD/SEK exchange rate of 8.7 in our estimates. The estimates can be found in the figure below or at the following link:

A more comprehensive update is on its way within short.

Following the Q3 report we also made some comments and discussed the fundamental factors in Fingerprint Cards. The video (in Swedish) is available at the following link:

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