Q2 smartphone shipment data indicates a y-o-y decline of 11%, marking the sixth consecutive y-o-y decline. However, the decline is slowing for the second quarter in a row and comps are starting to become easy from a historical perspective, as Q2’23 marks the lowest number of smartphones shipped in at least four years including Q1’20, which was severely impacted by COVID-19. This means that Algo should have easy comps going into H2’23e, and that a recovery in relative terms is increasingly likely. We expect Q2’23e Algo sales of SEK 14.6m and Digital Identity sales of SEK 5.8m, and a group EBITDA of SEK -0.1m.
Estimate changes
We cut ’23e-‘25e sales by 5-8% given phone shipment data and a view on Digital Identity growth that is more aligned with the underlying market. Consequently, we cut ’23e-‘25e EBITDA by 67-15%, a large revision in relative terms but relatively small in absolute terms. As smartphone OEMs appear to be successfully destocking, we could see Algo recover as early as H2’23. However, we take a slightly more cautious stance on this recovery given the extended slowdown that has occurred so far. Overall, Digital Identity ARR should grow at a low-to-mid-teens rate and is supported by an underlying market for access management that should grow by at least high single digits over a long time and that is being continually digitalised. While the Algo segment is more volatile, the margins are better than those of Digital Identity, at least in the near- and mid-term.
Implied valuation
Based on our revised estimates, the company is trading at a '23e-'24e EV/ EBITDA of 27x-5x.
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