1. business and industrial

COMPANY ANALYSIS 24 July 2015
Summary
Anoto Group AB
(ANOT.ST)
List:
Market Cap:
Industry:
CEO:
Chairman:
Raised expectations


This is a short update following not only the revealing of the
aspiring OEM partner (HP). During only the last few weeks
Anoto has made several other positive announcements. The
recent news with the Penvision acquisition, Optika Display
and the TStudy exclusivity agreement has made us even
more positive towards Anoto’s business operations.
Small cap
1,364 MSEK
Information Technology
Stein Revelsby
Jörgen Durban
OMXS 30
Anoto Group AB
1.6
1.4
With the new information out there we believe it is necessary
to revise our short and long-term estimates once again,
although no details what so ever has been released regarding
the important HP project. In addition, our Rating is
strengthened by the stronger financial position. All in all,
this results in an increase in our fair value of 66 percent. We
have a lot of room for raising our estimates further as soon
as we get to calculate with some actual numbers. The
uncertainty associated with the coming HP announcement
of course makes our assumptions extra uncertain, which
means that this analysis update might be obsolete within
days.
1.2
1
0.8
0.6
0.4
0.2
0
24-Jul
22-Oct
20-Jan
20-Apr
19-Jul
Redeye Rating (0 – 10 points)
Management
Growth prospect
Ownership
4.0 points
5.0 points
Profitability
Financial strength
0.0 points
7.5 points
4.0 points
Key Financials
Revenue, MSEK
Growth
EBITDA
2013
144
2014
141
2015E
233
2016E
313
2017E
439
-27%
-2%
65%
34%
40%
-79
EBITDA margin
EBIT
Pre-tax earnings
Net earnings
Net margin
19
-10%
-56
101
6%
-30
23%
10
95
-116%
-40%
-13%
3%
22%
-168
-168
-63
-63
-27
-27
6
6
93
93
-117%
2013
Dividend/Share
EPS adj.
-24
-35%
-163
EBIT margin
-45%
2014
0.00
n/a
2013
P/E adj.
EV/S
EV/EBITDA
-49
-55%
2015E
0.00
n/a
2014
-0.3
0.7
n/a
-12%
2016E
0.00
n/a
2015E
n/a
2.0
n/a
2%
n/a
5.1
n/a
1.5
897.1
1,364
-53
Free float (%)
Daily turnover (’000)
84 %
30000
21%
2017E
0.00
0.01
2016E
Share information
Share price (SEK)
Number of shares (m)
Market Cap (MSEK)
Net debt 2014E (MSEK)
0.00
0.10
Analysts:
Viktor Westman
viktor.westman@redeye.se
2017E
230.3
3.8
64.3
14.6
2.7
11.7
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: info@redeye.se
Anoto Group AB
Redeye Rating: Background and definitions
The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or
operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 –
Ownership, 3 – Growth Outlook, 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted
differently according to how important they are deemed to be. Each key factor is allocated a number of points
based on its rating. The assessment of each valuation key is based on the total number of points for these
individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of
the bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to
manage the company in the best interests of the shareholders. A good board and management can make a
mediocre business concept profitable, while a poor board and management can even lead a strong company into
crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 –
Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner
commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with
a dispersed ownership structure without a clear controlling shareholder have historically performed worse than
the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner
commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.
Growth Outlook
Our Growth Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit
growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does
not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to
assess Growth Outlook are: 1 – Strategies and business model, 2 – Sale potential, 3 – Market growth, 4 – Market
position, and 5 – Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to
generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company
has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on
total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating
profit margin or EBIT.
Financial Strength
Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.
The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no
benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength
is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 –
Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary
events.
Company analysis
2
Anoto Group AB
The expectations is rising
The last few weeks has altered our perception of Anoto’s business in several
positive ways, apart from the dilution from the acquisition and the latest
private placements (which on the other hand we believe was necessary for
strengthening the working capital).
News in Anoto lately
Here we list and go through the recent happenings in Anoto:
1.
Prolonged exclusivity agreement with TStudy
2. Additional orders from both India and South Korea
Extremely busy weeks for
Anoto lately
3. Two new private placements
4. Promising start for the Optika Display partnership
5.
The name of the new OEM partner has been revealed
6. Anoto aquires Penvision
1. Prolonged exclusivity agreement with TStudy
TStudy has agreed to buy
pens of approximately
SEK 660 million although
with very low gross
margins for Anoto.
.
Anoto recently closed a large, 5 year exclusivity agreement with its partner
TStudy. The price TStudy are paying for prolonged exclusivity is a
guarantee to buy a minimum of 2 million pens during the period.
Calculating with the earlier TStudy pen price of SEK 330 per pen the
agreement would mean sales of on average SEK 132 million per year.
However we do not expect an even distribution but instead gradually
increasing size of the orders. In addition, gross margins are substantially
lower, almost 5 times lower than the rest of the Anoto, which would indicate
only about SEK 90 million in gross profit. On the other hand the growing
pen volumes makes it possible for Anoto to lower the cost of goods sold and
hence expand the gross margins. Another important aspect is of course that
TStudy must have the financing necessary. According to Anoto, TStudy now
has a solid financial position and the new investors that secured the
financing ofUSD 6.5 million, about a year ago, have strong financial
muscles.
2. Additional orders from both India and South Korea
Follow-up orders have been received from both India and South Korea.
Customers returning for more indicates a strong and relevant value
proposition.
3. Two new private placements
As mentioned many times before we believe that the private placements of
SEK 15.3 million and SEK 40.5 million (before transaction costs) was
needed for strengthening of the working capital.
Company analysis
3
Anoto Group AB
4. Promising start for the Optika Display partnership
Anoto, last month, together with Optika Display launched Collaborate 65, a
large format (65 inch) ultra-high definition 4K interactive display at the
InfoComm Expo. We have earlier in the following text
http://www.redeye.se/analys/today/anoto-first-demonstration-valueproposition written about Optika and this interesting partnership.1
Prominent awards for
Anoto at InfoComm …
Recently we learned that Optika Display won the award for Best Personal
Workspace for Creatives on the InfoComm Expo. In addition, Anoto’s
affiliate we-inspire was presented with the Telepresence Options’ Best
Visual Collaboration Solution. These are as impressive wins as they are
important, as there were 950 exhibitors and 40 000 attending professionals
at the InfoComm Expo, meaning the best possible publicity.
The probable rival, Microsoft, also presented its Surface Hub at InfoComm.
Below we are listing some reasons why Anoto and Optika’s solutions is
better or just as good as Microsoft’s:
… but for the rival
Microsoft as well
1. The distribution of InfoComm awards suggests that Anoto’s solutions is
best for the creatives, i.e. the creative niche that Anoto wants to address.
Microsoft also won a price at InfoComm for its Surface Hub, which was
presented with Best Interactive Display, indicating a more all-round usage
area. Microsoft’s display is not 4K and thus not specially designed for
creative design users but more meant to be a traditional whiteboard.
1
In Our earlier look at Optika Display we wrote the following:
What is Optika Display?
Optika Display is described by the parent company, Stratacache, as a leader in the LCD
enhancement market which provides industries with economical, innovative display solutions.
Optika Display addresses customers who want more customized displays that do not fit the
sizes and types of the standards and mass-production of the major Asian display
manufacturers. Optika Display has been serving the needs of specialty industries, especially for
outdoor-usage including military, automotive, aerospace and marine applications etcetera, but
also segments of the traditional display market as well.
The partnership and the business model
Anoto’s value proposition is to combine digital writing on paper, large displays and interactive
walls.. The partnership has worked to create an industry standard for a collaboration platform
where Anoto’s solution as a result is coupled with edge-to-edge multi-touch.
As we understand it, Optika Display will be the product owner buying all the components and
Digital View will help with parts of the assembly. The panels are coming from AU Optronics,
and FlatFrog’s role is to supply the touch solutions. Anoto will provide rolls of film with its dot
pattern.
Collaborate 65UHD and the product offering
There are, according to Anoto, endless of combination opportunities for the Collaborate 65
UHD. In addition, Collaborate 65UHD will be compatible with a lot of protocols, operating
systems, architectures etcetera. In Optika Display’s press release it was stated that this
adaptability enables Avnet’s value-added resellers and professional audio-visual companies in
the Avnet communities to create and bundle “solutions for both new and upgraded customer
environments”. Why is this important? Avnet is a Fortune500-company and with sales of USD
28 billion the world’s largest distributor of electronics, i.e. a tremendous distribution partner.
A potentially huge market
As we have written in earlier analysis updates, the market is driven by the transition from
projector-based interactive whiteboards to interactive displays in the 4 million corporate
boardrooms, meaning a potential billion dollar market. We believe that the large displays
partnership has the potential to be Anoto’s largest elephant.
Company analysis
4
Anoto Group AB
We feel that there is a difference here as Microsoft, as opposed to Anoto,
might want to go after the general volume market. Microsoft could probably
capture a large part of the market with its large and superior sales force,
although there should be enough viable niches to provide Anoto with strong
growth possibilities.
Microsofts Surface Hub is
still not using the N-trig
pen, perhaps because it is
simply not possible
2. A peculiar thing is that the Surface Hub is not using the N-trig pen, even
though the two companies have known each other and been co-operating
for several years now. Microsoft made its first investment in N-trig as early
as in 2009. We believe the reason why Surface Hub is not using the N-trig
pen is that it is simply too hard to do so on such large formats as the Surface
Hub.
3. Microsoft started to accept pre-orders of its Surface Hub device on July 1
in 24 markets with shipping estimated to start in September. The larger
device will come at a high price of USD 20 000 and have a size of 8 inches.
The alternative is 55 inches for USD 7 000. Collaborate 65 will be
substantially less costly than the Surface Hub.
4. Microsoft launched the Surface Hub last year and enticed the market
demand but for some reason experienced troubles in delivery.
5. Last but not least we have the Anoto technology advantages over the pcap technology with interoperability and better precision. Anoto’s tip is
smaller and is about the size of a real pen. The Surface Hub is, as opposed
to Anoto, not compatible with other touch displays as it uses a proprietary
p-cap controller which is located under the display. Putting sensors and
controllers under the display also takes up space which worsens the
parallax effect compared to Anoto’s totally flat micro dot-pattern. The
parallax effect tells the user were the digitizer thinks the pen is, and this is
the most important characteristic of an active pen according to Microsoft’s
Surface Pro leading architect Panos Panay.
Two small letters last
weeks stopped the
trading of the Anoto
share
5. The name of the OEM partner has been revealed
Last week, Anoto revealed that HP is the OEM partner that Anoto are
negotiating with following a confidential document from HP that was
leaked on the internet. From the document we learned that there is a road
map from HP in which Anoto’s pens and dot pattern are included in the HP
Sprout 1.5, for both consumer and commercial applications. A less
encouraging detail in the document was that it is suggested that Anoto’s
pens will only be optional and hence not a part included in the offering.
We were earlier contemplating the size of volume commitments and these
thoughts have now somewhat been altered/extended to a question on how
many of HP’s workstations that will need a digital pen. HP sold about 57
million computers in 2014 and roughly has a good 18 percent of the total
global market according to statistics from Gartner. However, HP Sprout is
not a mainstream product. Given the title of the author of the document
Company analysis
5
Anoto Group AB
(Workstation Specialist) it is probably a lot more likely that the relevant
market for Anoto is HP’s workstations. HP has about 40 percent of the total
4 million units in the workstations market meaning that HP sells about 1,6
million workstations a year.
But the leaked document
from HP did not mention
volumes
Anoto makes an
acquisition with vertical
integration
In the absence of volume commitment data etcetera we have compared our
2016 estimates of pen volumes from the OEM sales with HP’s workstations
and computers just as a sanity check. Our expectations for 2016 has been
volumes of 110 000 pens for a price of USD 50 and sales of SEK 44 million.
110 000 pens would mean a penetration ratio of 6,9 percent of all of HP’s
workstations and two thousandths of HP’s total computer sales. Our initial
conclusion is that we are not underestimating the initial OEM pen volumes.
6. Anoto aquires Penvision
Yesterday Anoto announced that the Company is acquiring Penvision, a
software company within digital solutions. Penvision will as of yesterday be
fully integrated in Anoto with no separate reporting. The acquisition means
vertical integration of the value chain with control of the end customer
price. Anoto is a current Penvision customer depending on Penvision’s core
product Formidable to provide Anoto Live Forms (an Enterprise Solutions
application for signatues, documents and mobile data capture). Following
the acquisition Anoto will have the whole Live Forms solution in-house and
will not need to pay license costs related to Formidable.
In the table below Penvision’s income statement for 2014 and 2013 is
displayed:
Penvision: Income Statement
Sales
other income
Total sales
COGS
Gross profit
2013
12.5
0.5
13.1
-4.9
8.2
2014
13.5
0.1
13.6
-4.5
9.1
Gross margin
65.2%
67.4%
-5.1
-5.1
-2.0
-5.0
-5.4
-1.4
Other external costs
Employee costs
EBITDA
EBITDA %
Depreciation
EBIT
Financial income
Financial expenses
Net financials
Pre tax profit
Net earnings
n/a
n/a
-0.5
-2.5
0.0
0.0
0.0
-2.5
-2.5
-0.5
-1.8
0.0
0.0
0.0
-1.8
-1.8
Source: Penvision (annual report of 2014)
As can be seen in the table Penvision’s gross margins are quite strong,
which is not surprising as Penvision is a software company. The operating
expenses are only around SEK 10 million.
Company analysis
6
Anoto Group AB
The historical numbers
acquired company has so
far not impressed
The payment seems
shareholder friendly
30 percent of Penvision’s revenue of SEK 13 million was related to Anoto,
although Anoto expect sales to grow going forward. Looking back,
Penvision has lost 19 percent of the revenue 2014 compared to 2010. Year
2012 is the only year that represents a growth (4 %) in our comparison with
2010. In addition, Penvision’s partner network decreased by about 13
percent between 2013 and 2014 as the network consisted of 70 partners at
the end of year 2014 compared to 80 the year before. According to
Penvision the reason behind the decrease is consolidation of the partners.
As we understand it the price of the shares in the non-cash issue is not fully
set but we are calculating with the closing share price of yesterday, meaning
a price of P/S 2.3x. We like the payment form with a non-cash issue as the
share is up almost 200 percent the last three months meaning less dilution
effects. The reason why Penvision is accepting a deal with 0 percent cash we
believe has to do with a generational shift where the CEO retires. There will
be no lock-up period on the new issued shares.
The balance sheet of Penvision is really thin as can be seen in the balance
sheet table below, suggesting that a large part of the acquisition is
motivated by recruiting the employee talent. On the other hand this also
means 10 more mouths to feed for Anoto and an increase of the employees
with about 10 percent. The perhaps most important part of the deal is that
Anoto will get a close, direct access to the partnership network and the
customers of Penvision.
Penvision: Balance sheet
2013
2014
FIXED ASSETS
Intangible assets
Financial assets*
Total fixed assets
1.4
1.0
2.4
0.9
1.0
1.9
Current assets
Inventory
Accounts receivables
Other receivables
Total receivables
Cash
Total current assets
0.1
3.4
0.4
3.8
5.5
9.3
0.0
1.7
0.5
2.2
2.6
4.8
11.7
6.7
EQUITY & DEBT
Equity
5.3
3.4
Debt
Provisions
Long term debt
1.0
0.0
1.0
0.0
Short term debt
Accounts receivables
Other short term debt
Total short term debt
3.1
2.3
5.4
1.5
0.9
2.3
11.7
6.7
Total Assets
TOTAL DEBT & EQUITY
Source: Penvision (annual report of 2014)
* = Endowment insurance for the benefit of the C EO
Company analysis
7
Anoto Group AB
Financial estimates
Estimates for the second quarter and forward
As for Anoto’s Q2 report we are expecting sales of SEK 61 million. As can be
seen in the table below this is a substantial increase from the previous
quarters. However, it is important to remember that this revenue increase is
to a large extent driven from low margin orders from customers like
TStudy.
Detailed estimates (SEK million)
SEKm
Total sales
Gross margin
OPEX
EBITDA
Depreciation
EBIT
Net financials
Pre tax loss
Q1'14
37.0
72.7%
34.6
-7.7
-4.5
Q2'14
31.0
63.0%
36.8
-17.2
0.6
Q3'14
27.1
64.5%
37.2
-19.7
-3.0
Q4'14
46.0
65.8%
39.4
-3.7
0.7
2014
141.1
63.3%
148.0
-49.2
-6.2
Q1'15
43.1
58.7%
-37.4
-12.1
-1.4
Q2'15E
60.6
50.0%
-39.0
-8.7
-1.5
Q3'15E
64.2
52.4%
-37.0
-3.4
-1.5
Q4'15E
65.4
58.5%
-38.5
-0.2
-1.5
2015E
233.1
54.7%
-151.9
-24.3
-5.9
2016E
313.3
55.7%
-156.5
17.9
-8.0
-12.1
-16.6
-22.7
-4.4
-55.9
-13.4
-10.2
-4.9
-1.7
-30.2
9.9
-0.8
-13
-1.0
-18
-2.6
-25
-2.8
-7
-7.2
-63
7.8
-5.6
-1.5
-11.7
-1.5
-6.4
-1.5
-3.2
3.2
-26.9
-6.0
-14
Source: Redeye Research
Short term changes in our estimates
The aforementioned news with especially education (TStudy) but also India,
South Korea, Optika Display and Penvision has resulted in the following
changes in our estimates.
The short term estimates changes can be seen in the table below:
Changes in estimates
SEKm
Sales
Old
New
% change
Technology Licensing
Old
New
% change
Business Solutions (Incl C technologies) Old
New
% change
EBITDA
Old
New
% change
EBIT
Old
New
% change
Earnings per share
Old
New
% change
Source: Redeye Research
Company analysis
8
2015E
220
233
6%
109
121
11%
111
113
1%
-24
-23
-3%
-31
-30
-3%
n/a
n/a
n/a
2016E
263
313
19%
147
182
24%
116
131
13%
15
18
19%
7
10
42%
0.00
0.01
n/a
Anoto Group AB
The proportions of our new sales estimates are displayed in the graph
below. As the major revenue impact comes from TStudy we have broken out
the Education sales to show them separately.
Detailed sales estimates (SEK million)
450
400
350
Business Solutions (incl. C Tech & Penvision)
Underlying Technology Licensing*
Education
we-inspire (Interactive Walls)
Interactive Displays
300
250
200
150
100
50
0
2015E
2016E
2017E
* = Including Smartmatic, Livescribe & Panasonic
Source: Redeye Research
Cash flow and burn rate
Anoto had SEK 33 million in cash following Q1 and raised SEK 15 million
and SEK 40.5 million from two more private placements. We have
estimated that Anoto will burn SEK 12 million of the cash during Q2. The
working capital issue still remains. If the inventory returns to the historical
levels we could be looking at cash of about SEK 65 million following Q2,
indicating that Anoto’s statement that the cash is enough for the next 12
months is valid. It is also important to remember that parts of Anoto’s
authorization to issue new shares (10 million shares of the total
authorization of 80 million shares) is still valid when the acquisition is
complete.
Company analysis
9
Anoto Group AB
Valuation
In our valuation of Anoto we have used a discounted cash flow valuation
(DCF) with three different scenarios: our most expected base case, together
with a pessimistic as well as an optimistic scenario respectively (bull and
bear case respectively). The wide bull and bear range illustrates Anoto’s
binary win or lose-situation.
Valuation conclusion and the share
Anoto’s recent private placements and the authorization to raise more
capital if needed has strengthened our Redeye Rating of Anoto and hence
decreased the risk. Our new rating for the stability and the capital strength
of 4 (1) lowers our required rate of return from 16.8 percent to 15.0 percent,
meaning a major impact on the valuation. Our new fair value for Anoto is
SEK 664 million, meaning an increase of 66 percent from the previous SEK
401 million after the dilution effects (Our valuation assumptions are
presented further down in this section.).
As mentioned, we are very impressed by the performance in Anoto’s
business operations. However, investing is not only about finding great
companies but also to find undervalued businesses. Unfortuneately we are
far from the only ones who are impressed by Anoto. Anoto’s share has
continued to skyrocket. The share price has rose close to 200 percent
during the last three months, although not without company-related news
as the order intake has been strong during the period together with
interesting news on the partnerships A major question is of course if these
news is equal to Anoto making profits with a net present value of SEK 900+
million more than three months ago ( i.e. if they can justify a SEK 900+
value increase). To us this is not the case as the essence of the Anoto
investment case is virtually the same as one year ago when we first learned
about the large OEM (HP) case, which is yet to be seen. What has happened
is instead that Anoto has been discovered by numerous of investors. It is
not uncommon for the more unknown, small growth stocks to rise fast as
more and more people hear about them.
We are calculating with a high CAGR sales growth of 24 percent during the
coming four years. Nonetheless, Anoto is today valued at EV/EBIT 14x on
our 2017 estimates. But then again we have to be humble for the outcome of
the HP deal that of course could alter everything.
Discounted cash flow valuation
In all of our three scenarios in the DCF-valuation of Anoto we have used a
new discount rate of 15.0 percent (16,8), due to, as mentioned, the stronger
financial stability. The discount rate is a reflection of Anoto’s past
performance and the uncertainty in the large strategic shift. We have not
taken into account any tax payments before year 2019, due to Anoto’s large
Company analysis
10
Anoto Group AB
deferred tax assets.
Our Base case
In our Anoto base case we make the following assumptions:
1. 2015: Closing of the deal with the new OEM partner, followed by
licensing and NRE revenue from that OEM partner’s product development,
and pilot pen orders in H2
2. 2016: A reference year where the products are verified. The product
development with the OEM partner continues and Anoto builds hype
among the most high end creative users together with the partner. Anoto
receives the first large OEM orders of pens of around 110 000 units, which
means that the Company reaches break-even. In addition, Anoto and the
partner Optika Display sells 2500 large interactive displays for a total of
SEK 10 million.
3. 2017: Two larger OEM orders as the other creative users follow suit
4. Business Solutions manages stabile sales of around SEK 105- 137 million
during 2015-2017 meaning a moderate growth.
5. Sales from large format interactive displays (Optika Display), Panasonic,
Smartmatic, Education, Livescribe and other underlying Technology
Licensing sales goes from SEK 91 million to SEK 206 million during 20152017, meaning that we are only counting with a few of these sub-segments
to be successful.
6. Anoto with the assumptions above will have a CAGR sales growth of 20
percent during 2015-2021.
7. The EBIT-margin is expected to be on average 17 percent for 2015-2021.
In summary, this would correspond to a value per share of SEK 0.74 or
a market cap of SEK 664 million. We assume that the probability for base
case to manifest is 50 percent.
A pessimistic scenario (bear case)
Our bear case assumptions are:
1. In a pessimistic, but reasonable scenario, Anoto would suffer from
additional working capital needs and increased operating expenses, as the
large sales from the OEM deal gets postponed for a few quarters, shows the
same disappointing sales results as Panasonic or even capsizes for some
reason. We assess that Anoto still can get a deal with another major OEM
but the Company would then need to start all over again with new
negotiations etcetera. In the meantime Anoto would then not be able to find
Company analysis
11
Anoto Group AB
further financing, and burns all capital within 2015. Anoto will not slash
OPEX, meaning that the downward spiral could then continue for some
years. Anoto has been phenomenal at raising capital throughout the years
in the past but that was mostly during bull market conditions and not for
instance during the latest financial crisis of 2008-2009. A need for capital
during a future recession or market turmoil might be too much to handle.
2. There is still some value in Anoto from tax loss carryforwards of more
than SEK 500 million, the technological expertise from focusing on a nisch
area for almost 20 years and more than 100 valid patents. Thus, Anoto’s
products or technology could be of value in someone else’s hands. Owners,
partners and competitors, such as TStudy, Smartmatic, SOLiD, Panasonic,
the new OEM customer and Wacom, all have various reasons for acquiring
Anoto. This event would be similar to how Microsoft bought N-trigs
technology, and not the whole company, for a price similar to a break-up
value.
The sale of Anoto (or parts of the Company) could be worth about SEK 180
million in total. Thus, our value of Anoto in bear case amounts to
0.2 SEK per share. Our expected probability for bear case is 25 percent.
An optimistic scenario (bull case)
Assumptions in bull case:
1. In bull case we believe that everything goes faster and better than
expected, first and foremost in the HP project. We also believe that we
could have underestimated the Optika Display partnership in its billion
dollar market. Anoto in bull case captures 2,5 percent of Touch Display
Research’s estimated 2017 market for active pens of USD 3 billion, or USD
75 million in sales. Together with the Business Solutions revenue of SEK
137 million the aforementioned sales translates to total sales of close to SEK
600 million 2017. In bull case we are, outside of the strong growth in
interactive displays, also counting on most of the customers within
Education, Smartmatic, Panasonic and we-inspire to be important sales
growth drivers. The CAGR sales growth between 2015 and 2018 will be 31
percent.
2. Anoto’s gross margins of 65-70 percent suggests that the Company could
likely reach sustainable EBIT margins in bull case of at least 25 percent
within about 4 years, if we assume scalability in OPEX.
3. With our assumptions above the fair value would then in bull case
be SEK 1698 million, or a value per share of SEK 1.89. Our expected
probability for bull case is 25 percent.
Company analysis
12
Anoto Group AB
Summary Redeye Rating
The rating consists of five valuation keys, each constituting an overall
assessment of several factors that are rated on a scale of 0 to 2 points. The
maximum score for a valuation key is 10 points.
Rating changes in the report
The financial strength score is raised to 4 (1) due to the private placements.
Management 5.0p
Anoto has historically not been good at meeting the Company's objectives
despite several changes of strategy and numerous of rights issues with
poor timing. Until recently, Anoto was still focusing on the decreasing
Enterprise Solutions area. On the positive side the new strategy with
technology licensing and search for large OEM partners to address viable
niches in the creative design industry seems sound. Management has
long experience and good understanding of the market and the
competitor.
Ownership 4.0p
Important customers and partners hold large stakes of Anoto and have
board positions in the Company. For a higher score larger positions from
insiders in the Company is needed, as well as a major shareholder with a
larger position.
Growth prospect 7.5p
The market for active pen solutions and editable displays is large, yet still
fast growing and consists of several segments. Anoto has also sold pens
for countless of different applications. However, the failure has been to
never reach sufficient volumes. Now Anoto has a new strategy meaning
that the Company will go to market together with large OEM:s.
Panasonic is a good example of an impressive reference customer. What
Anoto has done is to evaluate its technology's advantages in relation to
the competitors. Anoto then found that the product's precision,
interoperability and unique paper to screen solution are strong
competitive advantages for high end users in the creative industry. It is
this industry that Anoto now will address together with OEM:s.
Profitability 0.0p
Anoto has never been profitable except for a few quarters, despite sales of
around SEK 150 million in 2013-2014 and even more during the previous
years. The high gross margins of 60-70 percent indicates scalability.
Anoto states that the company has high growth ambitions and therefore
will not slash the operating expenses to less than SEK 122 MSEK. This
makes the profitability entirely a top line issue.
Financial strength 4.0p
In relation to the Company's historic revenue, sales levels need a boost to
reach break-even. The current burn rate is decreasing, along with OPEX,
but is nevertheless still a question mark since the sales cycles with OEM
partners in the licensing business until product releases are long and
thus require solid financing. Anoto had SEK 33 million in cash following
Q1 and has after Q1 made private placements of about in total SEK 59
million after transaction costs. The company states that this is enough for
one year's working capital needs, which we find likely.
Company analysis
13
Anoto Group AB
Income statement
Net sales
Total operating costs
EBITDA
2013
144
-223
-79
2014
141
-190
-49
2015E
233
-258
-24
2016E
313
-295
19
2017E
439
-338
101
Depreciation
Amortization
Impairment charges
EBIT
-3
-9
-72
-163
-6
1
-2
-56
-1
-4
0
-30
-2
-7
0
10
-1
-5
0
95
Share in profits
Net financial items
Exchange rate dif.
Pre-tax profit
0
-5
0
-168
0
-7
0
-63
0
3
0
-27
0
-4
0
6
0
-2
0
93
Tax
Net earnings
0
-168
1
-63
0
-27
0
6
0
93
Balance
Assets
Current assets
Cash in banks
Receivables
Inventories
Other current assets
Current assets
Fixed assets
Tangible assets
Associated comp.
Investments
Goodwill
Cap. exp. for dev.
O intangible rights
O non-current assets
Total fixed assets
Deferred tax assets
2013
2014
2015E
2016E
2017E
7
28
28
31
94
4
37
21
20
81
72
44
31
25
173
63
56
42
25
187
104
79
57
25
265
3
0
4
62
0
10
0
78
0
2
0
4
60
0
19
0
86
0
2
0
4
63
0
17
0
86
0
2
0
4
63
0
13
0
82
0
4
0
4
63
0
11
0
81
0
172
167
259
268
347
Total (assets)
Liabilities
Current liabilities
Short-term debt
Accounts payable
O current liabilities
Current liabilities
Long-term debt
O long-term liabilities
Convertibles
Total Liabilities
Deferred tax liab
Provisions
Shareholders' equity
Minority interest (BS)
Minority & equity
16
0
88
104
1
0
0
105
0
0
83
-17
66
36
0
66
102
2
0
0
104
0
1
78
-16
62
19
0
76
95
0
0
0
95
0
1
180
-16
163
19
0
80
99
0
0
0
99
0
1
185
-16
169
0
0
84
84
0
0
0
84
0
1
279
-16
262
Total liab & SE
172
167
259
268
347
Free cash flow
Net sales
Total operating
costs
Depreciations total
EBIT
Taxes on EBIT
NOPLAT
Depreciation
Gross cash flow
Change in WC
Gross CAPEX
2013
144
-223
2014
141
-190
2015E
233
-258
2016E
313
-295
2017E
439
-338
-84
-163
0
-163
84
-79
-7
-25
-7
-56
1
-56
7
-48
-12
-15
-6
-30
0
-30
6
-24
-14
-6
-9
10
0
10
9
19
-19
-5
-6
95
0
95
6
101
-33
-6
Free cash flow
-111
-76
-44
-5
62
Capital structure
Equity ratio
Debt/equity ratio
Net debt
Capital employed
Capital turnover
rate
Growth
Sales growth
EPS growth (adj)
2013
38%
21%
10
76
0.8
2014
37%
49%
34
96
0.8
2015E
63%
10%
-53
110
0.9
2016E
63%
10%
-44
125
1.2
2017E
76%
0%
-104
158
1.3
2013
-27%
243%
2014
-2%
-88%
2015E
65%
-75%
2016E
34%
-122%
2017E
40%
1,474%
DCF valuation
WACC (%)
15.0 %
Assumptions 2015-2021 (%)
Average sales growth
20 %
EBIT margin
17 %
Fair value e. per share, SEK
Share price, SEK
0.74
1.5
Profitability
ROE
ROCE
ROIC
EBITDA margin
EBIT margin
Net margin
2013
-158%
-150%
-127%
-55%
-113%
-117%
2014
-78%
-61%
-73%
-35%
-40%
-45%
2015E
-21%
-21%
-31%
-10%
-13%
-12%
2016E
3%
5%
9%
6%
3%
2%
2017E
40%
42%
76%
23%
22%
21%
Data per share
EPS
EPS adj
Dividend
Net debt
Total shares
2013
-0.96
-0.57
0.00
0.03
389.88
2014
-0.12
-0.12
0.00
0.05
725.37
2015E
-0.03
-0.03
0.00
-0.06
897.15
2016E
0.01
0.01
0.00
-0.05
897.15
2017E
0.10
0.10
0.00
-0.12
897.15
2013
103.6
-0.3
-0.3
0.4
0.7
-1.3
-0.6
1.4
2014
275.1
-3.5
-3.5
1.5
2.0
-5.6
-4.9
3.9
2015E
1,187.2
-50.6
-50.6
5.8
5.1
-48.9
-39.3
7.6
2016E
1,200.3
230.3
230.3
4.4
3.8
64.3
121.0
7.4
2017E
1,180.1
14.6
14.6
3.1
2.7
11.7
12.4
4.9
Valuation
EV
P/E
P/E diluted
P/Sales
EV/Sales
EV/EBITDA
EV/EBIT
P/BV
Share performance
1 month
3 month
12 month
Since start of the year
Shareholder structure %
Solid Technologies Inc.
Antonio Mugica
SEB Enskilda AS - Klientdepå
Avanza Pension
Fougner Invest AS
Nqi Netfonds Asa
Kristianro AS
Nordnet Pensionsförsäkring
JPM Chase NA
NTC Various Fiduciary Capacit
Share information
Reuters code
List
Share price
Total shares, million
Market Cap, MSEK
87.7
198.0
186.8
261.9
%
%
%
%
Growth/year
Net sales
Operating profit adj
EPS, just
Equity
Capital
8.5 %
7.2 %
7.1 %
5.4 %
4.3 %
3.3 %
2.5 %
2.1 %
1.8 %
1.6 %
13/15e
27.3 %
n/a
n/a
57.4 %
Votes
8.5 %
7.2 %
7.1 %
5.4 %
4.3 %
3.3 %
2.5 %
2.1 %
1.8 %
1.6 %
ANOT.ST
Small cap
1.5
897.1
1363.7
Management & board
CEO
CFO
IR
Chairman
Stein Revelsby
Karl Wiersholm
Stein Revelsby
Jörgen Durban
Financial information
Q2 report
Q3 report
August 14, 2015
November 06, 2015
Analysts
Viktor Westman
viktor.westman@redeye.se
Company analysis
14
Redeye AB
Mäster Samuelsgatan 42, 10tr
111 57 Stockholm
Anoto Group AB
Revenue & Growth (%)
EBIT (adjusted) & Margin (%)
500
450
400
350
300
250
200
150
100
50
0
80.0%
150
40.0%
60.0%
100
20.0%
40.0%
50
20.0%
0
-50
0.0%
2014
2015E
Net sales
2016E
2014
2015E
2016E
-40.0%
2017E
-60.0%
-80.0%
-100.0%
-120.0%
-140.0%
Net sales growth
EBIT adj
EBIT margin
Equity & debt-equity ratio (%)
0.2
0.2
0.8
0
0.1
0.7
0
0.6
2012
2013
-200
2017E
Earnings per share
-0.2
2012
-150
-40.0%
2013
-20.0%
-100
-20.0%
2012
0.0%
2013
2014
2015E
2016E
2017E
-0.1
0.5
-0.4
-0.2
0.4
-0.6
-0.3
0.3
-0.4
0.2
-0.5
0.1
-0.6
0
-0.8
-1
-1.2
-0.7
EPS, unadjusted
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2012
EPS, adjusted
2013
2014
Equity ratio
Conflict of interests
2015E
2016E
2017E
Debt-equity ratio
Company description
Viktor Westman owns shares in Anoto: No
Redeye performs/have performed services for the Company and
receives/have received compensation from the Company in connection
with this.
Anoto is a global, combined hardware and software company within
digital writing, with 90 percent of sales outside of the Nordics. The
Company has embarked on a cost cutting journey and has in addition
changed priorities, from digitizing forms to a license business with
global industrial partners like Panasonic, Smartmatic, and TStudy, by
offering solutions for editable screens and interactive walls.
Company analysis
15
Anoto Group AB
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Redeye Rating (2015-07-24)
Rating
7,5p - 10,0p
3,5p - 7,0p
0,0p - 3,0p
Company N
Management
Ownership
30
55
3
88
31
46
11
88
Growth
Prospect
14
71
3
88
Profitability
7
32
49
88
Financial
Strength
17
35
36
88
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Company analysis
16