Valuation of Fingerprint Cards AB: With Special Focus on the Market Psychology that Affets the Volatility of the Stock Price and Expectations for the Future Growth of the Fingerprint Market

Tue Prieske & Ulrik Blendstrup

Student thesis: Master thesis

Abstract

Fingerprint Cards AB (FPC) is a Swedish company that operates in the biometric market, where they are the leading suppliers of fingerprint scanners for smartphone market, which is the biggest fingerprint market at the moment. The fingerprint market is characterized by high growth due to the high penetration of the smartphone market and high expectations for new potential markets for the fingerprint technology. The new markets include smartcards, time registration and other validation systems.
FPC has experienced high revenue growth during 2015. Due to high expectations for the future, they experienced a large increase in the value of the stock, but at the same time high volatility.
The strategic analysis shows the high potential of the smartphone and smartcard market. It is expected that FPC will remain market leader in the smartphone market, but the competition will be sharpened in 2017 and might lead to a lower EBITDA margin and a reduced market share for FPC. There is greater uncertainty for the smartcard market, but FPC has a strong strategic partnership with Zwipe who has the best smartcard on the market. It is expected that fingerprint for smartcards have a high penetration rate, because of the credit card companies fear of losing market shares to substituting products – mainly smartphones which uses NFC technology.
The high volatility in the stock price is partly due to the fact that the investors of FPC are more influenced by psychology than those in well-known businesses. The psychology effect adds a lot of uncertainty to the stock price and is one of the reasons that FPC has a very high beta. The main behavioral effects that affect the stock price and add volatility are overconfidence, fundamentals and herding. We expect the investors to be less affected by psychology and the stock to have a lower beta in the future, when the fingerprint market is normalized and the fundamentals are in place.
The financial scope for analysis of FPC is limited since the historical data is not representative for the future, because FPC did not show a profit until 2015. Instead the budget is based mainly on the strategic analysis and the relevant financial data from 2015.
It is expected that FPC will continue a high growth, however not as much as in 2015. Due to the high uncertainty for FPC a Monte Carlo simulation is used to illustrate the sensitivity of the valuation based on the discounted cash flow method. The simulation values the stock from 459-961 SEK, which compared to the current market price of 481 SEK, indicates that the stock is traded with a discount. The difference from the market price could also denote that our valuation is too positive. Even though the uncertainty of the future markets and competition in the fingerprint market is high, we see a great potential, and believe that our simulation gives a fair value, and that the stock should trade at a higher price.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2016
Number of pages135