Freja’s Q3 report confirmed our positive views and our concerns. We are encouraged by the operating KPI trends (number of users, relying parties and ARR). However, the ability to accelerate monetisation on its eID platform remains a challenge. Given that the ramp-up is taking longer than expected, platform interaction activity has slowed and fewer new relying parties are being added, we have lowered our fair value to SEK6–10 (7–11), having cut our 2022–2023e sales by ~7%.
Q3 report takeaways. Group Q3 sales were SEK6.6m (80% YOY growth) but ~16% below our forecast while the EBIT loss of ~SEK11m was 72% below our forecast. The main KPIs were solid. Freja added 69k users during the quarter (reaching 737k users), rising 122% YOY. Even though the user base grew well, for the first time in Freja’s history the number of interactions had a negative trend QOQ (down 11%, amounting to 1.9m+, and 22% below our estimate). Finally, the amount of ’relying parties’ reached 503, slightly below our estimate but, nevertheless, up 41%+ YOY.
Financing secured… for now. During the quarter, Freja announced a financing debt agreement of SEK20m. Funding concerns have been a key challenge for the company in our view. Cash available at end-Q3 (excluding new finances) was SEK5m with a LTM FCF burn rate of ~SEK45m–55m. We find that the SEK20m new debt agreement with a term between one and three years might act as a funding bridge into 2023e where we expect a SEK30m recapitalisation. This would translate into 34% dilution with ~6.5m new shares.
Fair value cut to SEK6–10, based on Freja group’s historical average EV/sales applied to 2022e, DCF and peer multiples valuations, baking in a peer multiples contraction and higher WACC. We reiterate our view that the long-term growth opportunity for Freja eID is substantial, but that the market increasingly focused on short-term profitability. We calculate the company’s total investment in its technology platform corresponds to ~SEK8–10/share.
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Best regards
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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
Aurore Tigerschiöld | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: aurore.tigerschiold@dnb.se | www.dnb.no
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