neonode - amazon s3 · 2020-04-10 · neonode has hopes for regaining traction in the infotainment...

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: [email protected]

Update

Equity Research 19 November 2019

KEY STATS

Ticker NEON.OQ Market NASDAQ

Share Price (USD) 1.5 Market Cap (MUSD) 13 Net Debt 19E (MUSD) -2 Free Float 76 %

Avg. daily volume (‘000) 12

BEAR BASE BULL 2.0

4.0

10.0

KEY FINANCIALS (USDm)

2017 2018 2019E 2020E 2021E 2022E Net sales 10 9 7 7 14 20 EBITDA -5 -3 -2 -3 2 3 EBIT -5 -4 -4 -5 1 1 EPS (adj.)

2017 2018 2019E 2020E 2021E 2022E EPS (adj.) -0.1 -0.7 -0.5 -0.4 0.1 0.1 EV/Sales 4.9 0.5 1.7 2.0 1.0 0.7 EV/EBITDA -11.1 -1.5 -6.0 -4.4 6.7 4.7 EV/EBIT -9.2 -1.1 -2.6 -3.0 18.8 13.0 P/E -11.5 -2.5 -2.9 -3.3 20.7 14.9

ANALYSTS

Viktor Westman [email protected] Havan Hanna [email protected]

3 32

Show me the money New CEO improves chances of pulling off the turnaround …

Given the recent news, our investment case has been modified. Forssell’s proven

experience in building autotech businesses, which we will outline below, strengthens the

turnaround part of our investment case. However, the weak Q3 sales (29% below our

estimates) suggests that it could take longer than we initially thought. On the back of the

Q3 figures, we can understand the immediate CEO transition, and we respect the board for

taking decisive action.

… but the eroding license base lowers the break-up value

The other key assumption in our investment case is the limited downside from the base of

recurring license revenue. However, license sales are tanking and are not as sticky as we

first thought, meaning a worsened risk/reward, although it is still not bad, considering the

low market cap of about USD 12m. The problem is more on the sentiment and trust side.

As long as sales drop, shares are not likely to appreciate, in our view. Initially we thought

the license base was USD 10m, which was dead wrong. Then, we thought that it was USD

8m. This was also completely wrong. The eroding license base now seems closer to USD

5-6m.

Lower printer estimates and imminent capital raising

The NEON stock is in a stage where the market narrative seems to be “show us the

money”. We concur. It’s about time to turn sales around, alternatively unlock hidden values

by e.g. shutting down the module business. However, we assume Neonode will give the

new CEO a few quarters to prove himself, before taking more drastic action and move to

plan B. We lower our printer estimates and include a dilution of 20% from rather imminent

capital raising of about USD 2.5m in H1’20. The reason we do not foresee a larger offering

is that we expect a patent licensing agreement via Aequitas. Our new base case is USD 4

per share (6), while our bear and bull case amounts to USD 2 (3) and USD 10 (12).

Neonode Sector: Human Interaction

REDEYE RATING

FAIR VALUE RANGE

Finan

ce

Peop

le

Busin

ess

REDEYE Equity Research Neonode 19 November 2019

2

Show me the money In our note, in the beginning of November, we discussed the appointment of Urban Forssell

as CEO. Here, we complement with some graphs to illuminate his solid track record. The first

graph (see below) shows the fantastic journey of NIRA Dynamics, after it became known (in

2004) that tire pressure monitoring would be required by law. Forssell, in our belief, was

instrumental in laying the foundation of NIRA Dynamics’s success story, during his time as

CEO in 2001-2009.

After NIRA Dynamics, Forssell worked nine years for Öhlins Racing, where he held various VP

positions. Most notably, he was VP of business area CES (electronically controlled

suspension technologies) – a major, important part of Öhlins’ sales. The graph below

displays the group sales and EBIT margin during Forssell’s entire tenure.

NIRA Dynamics: Sales (SEKm) & EBIT margin (%)

Source: NIRA Dynamics

-60%

-40%

-20%

0%

20%

40%

60%

-300

-200

-100

0

100

200

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sales EBIT (%)

Öhlins Racing: Sales (SEKm) & EBIT margin (%)

Source: Öhlins Racing

0%

2%

4%

6%

8%

10%

12%

0

200

400

600

800

1000

1200

2011 2012 2013 2014 2015 2016 2017 2018

Net sales EBIT (%)

https://www.redeye.se/research/584585/neonode-new-ceo-strong-auto-track-record


3

We want to add that Forssell has an all-round background that we believe is extra useful for a

company like Neonode – a high-tech company with a proven, unique technology, in the need

of improving the execution when it comes to sales. Forssell has extensive sales experience,

but he also has a technical competency (Ph.D. in automatic control & former VP of RD&E)

that allows him to get respect from the Neonode engineers.

We are still not sure why Forssell would want to go to a small company like Neonode, as he

almost seems over-qualified. We assume Forssell has the relevant experience it takes to

make a good assessment of the prospects of Neonode, its tech etc., and that he sees the

potential to build another NIRA Dynamics success story. We await a stock option program for

Forssell. If he would load up on shares as well, it would be another indicator supporting the

coming arrival of a turnaround.

Still a bit early to see results

We were negatively surprised by the lack of news in the report. The CEO statement, in

essence, looked the same as Q2. However, as mentioned in the previous report, there is no

quick-fix in the embedded industry, and two years is not much time in this context. The

journey started when the new main owners came on board in August 2017 (see the timeline

graph below). In December 2017, the inventor, co-founder and CEO, Thomas Eriksson,

stepped down. The board member, Andreas Bunge, assumed the interim CEO position for a

coupe of months, before Håkan Persson joined in April 2017. Given the turmoil in the

management, but especially the industry lead times, we believe it is still a bit too early to give

up on Neonode. We believe few customers could have had the speed to get a new product

model out during Persson’s tenure of only 17 months. Automotive often has lead times of

three years.

Timeline of key events for the turn-around, sales & operating loss (USDm)

Source: Neonode, Redeye Research

-3

-2

-1

0

1

2

3

4

Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19

Sales Operating Loss

Håkan Persson joins as CEO

New main owners enter

The inv entor & co-f ounder steps

down as CEO Directed share issue of USD 4.7m f or insiders

and the main ownersThe appointment of Urban Forssell as new CEO


4

Q3: Weak license sales but the operating loss in line Sales were about USD 0.5m below our estimates (see the table below). The deviations came

in across the board, but about half of them related to Printers. In e-readers, we did not foresee

that Neonode would drop -96% or be essentially completely out of the customer it said it had

lost in Q4’18 (we believe this is Amazon Kindle). However, e-readers are too small to move

the needle (estimated USD 0.1m).

The operating loss of USD 1.2 came in as expected, since OPEX of USD 2.4m was 12% lower

than our estimates, which we assume partly was due to the USD/SEK relation. Neonode also

mentioned driving “ongoing cost efficiencies throughout the company”. We believe this

statement is related to measures that have already been taken, and consequently, we do not

expect any major cost savings during the next few quarters. We assume the board will give

Forssell a chance first for a few quarters, before eventually moving to plan B.

As can be seen in the rolling 12-month graph below, the long, weak sales trend continued in

Q3. Extrapolating the Q3’19 sales annually means sales of around USD 5m.

Neonode - Expected vs. Outcome

SEKm Q3'18 Q3'19E Outcome Diff

Sales 1.9 1.9 1.3 -0.5

Operating profit -0.9 -1.2 -1.2 0.0

PTP -0.9 -1.1 -1.3 -0.2

EPS, USD -0.16 -0.13 -0.13 0.00

Salesgrowth -16.6% -3.6% -31.9%

Grossmargin 82.4% 87.6% 95.1%

EBIT margin -48.6% -62.3% -90.8%

EPS growth n/a n/a n/a

Source: Neonode, Redeye Research

Sales per segment - rolling 12 monhts (USD million)

Source: Redeye Research, Neonode

0

2.5

5

7.5

10

12.5

15

License fee NRE Sensor Modules


5

The downturn is not as severe, if we isolate the sales to printers and automotive (see the

graph below). Automotive grew about 59% compared to last year.

Modules for military applications Q3 did not contain much news related to the module business area. Noteworthy is that

Neonode mentioned ruggedized control panels for military users as an interesting area. We

believe many of the selling points for med-tech is relevant for the military as well, and we

therefore believe that the ASP in this area is rather pleasant, while volumes are lower.

Moreover, there is an interesting upside in letting Finetek fully take over the module

production, but here we need more information.

Auto: Weak market growth in infotainment Neonode has hopes for regaining traction in the infotainment market, where it previously had

a market share of 4%, which is now more like 2%. We are a bit more cautious, as this is not a

strong growth market anymore. In short, this market has already happened, and many doors

are shut. Procurements were settled a long time ago and barriers to entry are now high after

contracts have been won (in automotive, you are either in or out).

The touch screen has already entered all price segments. IHS expects 64 million touch

modules shipped for auto infotainment in 2019, meaning a 1% growth. IHS says 2020 and

2021 will also see weak growth of 1% and 2%, respectively, due to global economy slowdown

and the trade war. Thus, there are few new contracts up for grabs during the next years.

However, IHS estimates 77 million units in total for 2023 as growth picks up the pace to 8%.

R12M total Printers & Automotive revenue (USD million)


0

2.5

5

7.5

10

Automotive sales Printers sales


6

There is nothing wrong with the competitiveness of Neonode’s product. It still has the

advantages of non-glear, better resolution, gloved touch, higher speed and better accuracy.

These advantages all still hold true. In addition, the sizes (and the ASP) are increasing from

larger displays, which is good for Neonode as its technology scales better. We believe the

failure in infotainment is related to the old execution mistakes (forced module migration) and

not the technology per se. When Neonode, in a relatively short time frame, formed relations

with ~10 tier-1s, and won 30+ car models for eight OEMs, it was unknown and unproven,

suggesting it should have a much easier journey this time.

Auto: …And the first tailgate contract goes to…. radar The market’s first non-capacitive tailgate will be radar-based (Acconeer). However, Acconeer

works exclusively with one tier-1 (Alps Alpine), leaving plenty of the market on the table for

Neonode and the others. In addition, the auto market is sensitive for (semi)-monopolies

following Mobileye, so it needs alternatives.

The tailgate is the only head-to-head competition area between Neonode and Acconeer, as

far as we know. There are many other use cases for optical technology inside the car.

However, we have not yet fully understood how Neonode can prevent an optical sensor

outside the car from being blinded by dirt, snow etc.

Still no news from the patent process As for the patent monetization program with Aequitas, we do not know much more, due to

the full secrecy of the agreement. We believe Aequitas could start by go after the most

blatant infringers, e.g. competitors of its customers. Alternatively, it could try to win against

the largest and most notorious infringers - the likes of Apple and Samsung etc. (some of

these players are likely in both groups). We expect Aequitas to follow the second approach.

According to US law, as we understand it, one can only collect license revenue for six years,

albeit this is still enough for a major upside, in our view.


7

Financial estimates We see no clear bottom in the printer sales decrease and therefore lower our estimates (see

the table below).

We do not expect any significant downward revisions in the OPEX from the Q3 levels. Our

new earnings estimates are summarized in the tables below:

Our auto estimates are basically unchanged (see the table below)

Forecast adjustments

(USDm) 2019E 2020E 2021E

Sales Old 8 9 17

New 7 7 14

% change -13% -23% -15%

EBIT Old -4 -3 2

New -4 -5 1

% change 2% 46% -69%

Profit before tax Old -4 -3 2

New -4 -5 1

% change 2% 47% -69%

Earnings per share Old -0.50 -0.35 0.28

New -0.51 -0.43 0.07

% change 2% 23% -75%


Short term sales & earnings assumptions

(USD million) 2019E 2020E 2021E

Total sales 7 7 14

Sales growth (%) -21% 4% 106%

Group gross margin 94% 90% 89%

OPEX -11 -11 -12

EBIT -4 -5 1

EBIT margin -67% -65% 5%

Pre-tax profit -4 -5 1

Net earnings -4 -5 1

EPS -0.51 -0.43 0.07



8

We expect a minor growth in printers in 2021 (see the table below). It is not only until 2023 we

expect printer levels to reach the 2018 levels again.

In the table below, we include our sensor module sales:

Sales assumptions: Automotive

(MUSD) 2019E 2020E 2021E

Total sales 1.7 2.0 2.8

whereof infotainment (%) 99% 100% 74%

whereof Autoliv steering wheels (%) 0% 0% 0%

whereof tailgate (%) 0% 0% 17%

whereof door collision avoidance & door handles (%) 0% 0% 9%

Sales growth (%) 7% 13% 43%

Total Neonode units shipped (mil) 1.0 1.1 1.4

whereof modules (%) 0% 0% 11%

whereof licensing (%) 100% 100% 89%

Volume growth (%) -8% 13% 26%

Blended ASP (USD) 1.8 1.8 2.0


Sales assumptions: Printers

(MUSD) 2019E 2020E 2021E


whereof HP (%) 75% 62% 60%

whereof others (%) 31% 38% 40%

Sales growth (%) -23% -9% 15%


whereof modules (%) 0% 0% 0%

whereof licensing (%) 100% 100% 100%

Volume growth (%) -15% -15% 15%

Blended ASP (USD) 0.6 0.7 0.7


Sales assumptions: Other sensor modules

(MUSD) 2019E 2020E 2021E


Sales growth (%) 151% 69% 77%

Total Neonode units shipped (') 28 92 148

Volume growth (%) 30% 227% 61%

Blended ASP (USD) 20 10 12



9

We expect e-readers to continue down at about zero sales in 2020 and then slowly start

growing in 2021 again (see the table below). We especially want to highlight that our other

sales estimates include a onetime patent licensing payment, related to Aequitas.

Quarterly estimates We expect an improvement in sales from the seasonally weak Q3, in Q4. However, we also

see an increase in OPEX of about 16% due to the CEO severance package, meaning the

operating loss of USD -1.3m, in our opinion, will be in line with Q3.

Sales assumptions: E-readers & other

(MUSD) 2019E 2020E 2021E


whereof E-readers 69% 0% 1%

whereof NRE & other 31% 100% 9%

whereof Aequitas (enforcement/licensing of patents) 90%

Sales growth (%) -84% 37% 2112%


Volume growth (%) -50% -100% 9900%

ASP excl. NRE (USD) 0.1 0.4 0.4


Quarterly estimates (million USD)

SEKm 2017 Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 Q4'19 2019

Sales 10.2 2.4 1.9 1.9 2.4 8.5 2.0 1.7 1.3 1.7 6.7

Sales growth (%) 0% 2% -19% -17% -28% -17% -15% -9% -32% -29% -22%

EBIT -5.5 -0.9 -1.2 -0.9 -0.9 -3.9 -0.7 -1.3 -1.2 -1.3 -4.5

PTP -5.5 -0.9 -1.2 -0.9 -1.0 -3.9 -0.7 -1.3 -1.2 -1.3 -4.5

EPS (USD) -0.10 -0.01 -0.02 -0.16 -0.16 -0.67 -0.07 -0.15 -0.13 -0.15 -0.51

EBIT margin (%) -53% -37% -62% -49% -38% -45% -33% -77% -91% -79% -67%

Gross margin (%) 77% 98% 95% 82% 81% 89% 95% 96% 95% 90% 94%

EPS growth (%) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a



10

Investment Case • Turnaround case turned credible with new main owners & management

• Limited downside from underlying values that could be unlocked

• Big autotech option free of charge

• Break-even and large module deals to drive the stock price

Turnaround case turned credible with new main owners & management

The stock market's confidence in Neonode has completely vanished, for very good reasons, in our view, most

notably the communication. Sales have deteriorated, but the low valuation is also a punishment for old sins.

However, this means that there are very clear reasons for why the shares are undervalued. The Neonode turnaround

case has turned credible, due to a promising set of new people. Besides a new CEO with a successful autotech

track record, the new owners and board members are very engaged and involved in the company. The COB comes

from a long career in private equity where the COB works tight with Management. The new owners also have

excellent track records in business and investing. The new board decided to focus and closed several far-fetched,

non-core projects initiated by previous Management. Moreover, the failed change in business model was reversed.

The company had told the customers they could only buy modules and not licenses going forward. This decision

was reversed around year-end 2017 and customers are now free to choose. We believe the lead times are about

two years, meaning we should soon begin to see some results. Despite all of Neonode's failures in the past, the

company has only lost a few customers, which is remarkable and implies a strong value proposition for the

customers. Our conclusion is that the technology and customer benefits are fantastic while execution and

communication have been lousy. All in all, there are evidence suggesting that Neonode could, indeed, finally turn.

Limited downside from underlying values that could be unlocked

Neonode's market valuation is close to a bankruptcy valuation, especially in relation to the recurring license revenue

base of about USD 5-6m per year. The burn rate is about USD 1m per quarter, meaning there should be a plan B in

unlocking large values tomorrow by cutting costs and earn license revenue with 100 % margin. This opportunity is

not new in itself, but the difference, in our own view, is that the new main owners are not sentimental and will not

tolerate more years of disappointment, meaning these values will eventually be unlocked if the business does not

turn.

Big autotech option free of charge

Smart Eye has the same market and drivers etc. as Neonode but the valuation differs by over 10x. In addition,

Neonode has higher ASP and even better barriers to entry (hardware vs software) compared to Smart Eye. Thus, we

have reason to believe that the perception change could be quite substantial, should Neonode be perceived as a hot

autotech company. Smart Eye has an expected order value of over SEK 1.5 bn for its total future license revenue.

Neonode has not publicly quantified its order values but they should reasonably be several times larger than today's

market cap. If Neonode would manage to close one single automotive contract it could have a value the size of

today's market cap. We still believe that the steering wheel partnership with Autoliv could alone be worth USD 100m,

although this lies a couple of years down the road, and consequently is not on the stock market radar. Euro NCAP is

now mandating driver monitoring technology but it still does not have any activities within hands on the steering

wheel. According to our industry sources though, it is likely that such activities could start going forward.

Break-even and large module deals to drive the stock price

Our base case of USD 4 per share in relation to our reasonably pessimistic scenario of USD 2 and our bull case of

USD 10 indicate a pessimistic perception and a good risk/reward. We argue that financial reports with black figures

are needed in order to change the perception of investors and move the stock. In addition, large module contracts,

especially in auto, are important catalysts for the Neonode shares (but of course the company also need to deliver

on those contracts - not only announce them).


11

Valuation

Bear Case 2.0 USD Base Case 4.0 USD Bull Case 10.0 USD Our investment case relies to a great extent on the assumption that Neonode will eventually succeed in its business model transition to modules. In our bear case we assume Neonode shuts down the module fab in 2021 and therefore can cut OPEX by 40%. By lowering its ambitions and laying off people Neonode could maintain high license profit margins but would then become a company of minor size with limited growth possibilities. We believe Neonode can have a decent success in monetizing licenses in its old areas and keep printer sales stable, but we do not see any traction in new verticals such as med-tech and military etc. The main difference in our bear case compared to our base scenario is the automotive modules. However, we expect steering wheel licensing revenue, albeit a bit delayed. We assume the focus, in general, will be on license deals. In total we forecast volumes of 3 million in automotive during year 2025, meaning half the volumes and half the revenue of our base case. We believe that one big risk in automotive is tier-1 suppliers launching their own optical solutions and that this materializes in a reasonably pessimistic scenario. In our bear case we also apply a higher margin of safety when it comes to the long-term technology risks as the many shortcomings of pro cap provide a massive incentive for development of existing and new technologies to replace pro cap. However, we do believe that pro cap, in a bear case, would prove to be more viable than expected due to suitable ITO replacements, preventing Neonode from expanding. Basically, we expect a status quo compared to what the company currently delivers. With the assumptions above we expect a slower CAGR sales growth of 19% during 2019-2025 and 4% during 2026-2028. Neonode would break even in the end of 2021 from savings and layoffs (a 40% OPEX reduction) and would then reach an EBIT margin of

In all of our scenarios we use a required rate of return of 13%. In our base case we expect Neonode to be able to pivot from licenses to modules in automotive although it would take longer than the company itself believes. We expect modules to account for 42% of automotive volumes in 2022. In printers, however, we do not expect any module conversion at all. We estimate a 33 percent CAGR automotive volume growth during 2019-2025 where infotainment volumes grow to 1.6 million - slower than the market. The remaining growth is divided by modules from collision avoidance sensors, tailgates and licenses for steering wheels. Steering wheels are the most important area given the high ASP although we believe we use more conservative ramp-up assumptions than Neonode. In total we forecast about 6 million sensor modules and licenses in automotive during year 2025. As for printers we assume an addressable market of 50 million units considering higher touch penetration but less focus from Neonode on the low-end printers. We assume Neonode can grow its volumes by a CAGR of 8% , reaching a market share of about 20% and a CAGR sales growth of 8% during years 2019-2025. We expect other sensor module volumes reaching around 340 000 in 2025 since the new segments, like match, have smaller volumes. We estimate a blended ASP of about USD 10-16 during the period, meaning sales reaching USD 5m in 2025. As for AirBar we expect it to be discontinued and not sold to a third party. We assume average module gross margins of about 45 percent for all module applications during 2018-2025. Our OPEX assumptions implies scalability as we expect a CAGR OPEX growth of only 8% during 2019-2025, considerably less than the sales growth. From the assumptions mentioned above we derive a CAGR sales growth of 33%. during years 2019-2025. with break-even around 2021 due to a one-off payment of USD 5m related to

In bull case we assume that everything runs smooth with the transition to modules. We also believe that the cars in 2025 would include on average around 30 percent more modules than our base case, due to tailgate and collision avoidance sensors We expect higher volumes for the steering wheel. If Autoliv (or Veoneer) maintains a 50+ percent win ratio on new contracts and consequently approaches its target of doubling its market share Neonode should sooner or later get a piece of the pie. Besides higher automotive revenue, our bull case also differs from our base case when it comes to new verticals. We expect 50% higher volumes from new verticals in 2025 compared to our base case, most notably related to the med-tech and military areas, where we believe Neonode has a strong value proposition. In addition, we assume a twice as high patent enforcement fee from Aequitas (USD 10m). From the assumptions above we estimate a CAGR sales growth of 45% during years 2019-2025 with the EBIT margin averaging 22% during 2022-2027. Hereafter we expect that margins will reach a sustainable, long-term EBIT margin of a solid 25% due to scalability and lower investment needs.


12

18-20% during 2022-2025 and a long-term EBIT margin of 10 percent.

Aequitas and enforcement of the patents. We see the EBIT margin reaching 17-23% during 2023-2025, whereafter margins will start to approach the long-term EBIT margin of 16 percent.


13

Catalysts Major module deals

In the fall of 2016 Neonode received a module deal of in total USD 11 million related to door handle modules for one

car model. Similar deals would have a major impact on the share price. We especially believe that a design win for

the steering wheel together with Autoliv/Veoneer would be positive as touch in steering wheels is crucial in handing

over from automatic to manual driving.

Break-even

We expect the reaching of break-even in the end of 2021 which would be an important milestone for the stock

market to grasp that Neonode has left the losses behind and hit the point of inflection.


14

Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated

on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

People: 3

The Board members are aboard, holding substantial amounts of shares, particularly the COB, Ulf Rosberg, who holds 18 %.

Reputable investor Peter Lindell owns 17 %. These new main owners come from the private equity industry and we believe they

will not tolerate more mis-management. Neonode in the fall of 2019 announced that Urban Forssell will become the new CEO. We

note that Forssell has a succesful track record in building autotech business, which we believe is important for Neonode as

automotive is its number one growth area. For a higher ownership score we would primarily therefore like to see share purchases

from the Management as executives only have minor holdings. Overall, Management has been long in the organization or have

experience from adjacent industries. Neonode has earlier missed its guidance on several occasions causing stock market

mistrust, although operationally it has managed to pivot from e-readers to automotive and printing, demonstrating years of

consistent hard work in order to be auto qualified. The large investments thus could pay off. All in all, these factors are reassuring

regarding the tough but sound business model shift from licenses to modules.

Business: 3

With the many competitive advantages of its unique, patented technology, Neonode is poised to benefit from the growing sensor

penetration for touch and gesture applications. Following challenging qualification phases of several years Neonode is now

integrated on the automotive platforms for an impressive list of tier-1 customers, meaning substantial barriers to entry where

Neonode can be included in the coming models on those platforms. The ramp-up in already launched models could support a

strong growth. In addition, the modules open up a world of new opportunities in segments that previously were not worthwhile due

to low volumes or extensive integration work, e.g. medtech.

Financials: 2

As Neonode never before has been able to reach profitability our retrospective profitability Redeye Rating can be no more than 0.

However, we believe that Neonode slowly is getting closer to the point of break-even. The base of license revenue together with

scalability and the low costs indicate that Neonode seems to have the ingredients it takes to be profitable in the future. At that

point the rating would start to gradually increase. Neonode has a lean balance sheet, basically without debt or capitalized assets.

Neonode did a USD 4.7m private placement in December 2018, but our estimates assume another financing round. As for

operative risks, there is a rather narrow product portfolio and a major dependence on a few customers.


15

PROFITABILITY 2017 2018 2019E 2020E 2021E ROE -83% -38% -46% -75% 14% ROCE -91% -44% -57% -101% 20% ROIC -854% -187% -138% -151% 26% EBITDA margin -44% -34% -29% -45% 14% EBIT margin -53% -45% -67% -65% 5% Net margin -55% -46% -67% -65% 5%

Please comment on the changes in Rating factors……

INCOME STATEMENT 2017 2018 2019E 2020E 2021E Net sales 10 9 7 7 14 Total operating costs -15 -11 -9 -10 -12 EBITDA -5 -3 -2 -3 2 Depreciation -1 -1 -3 -1 -1 Amortization 0 0 0 0 0 Impairment charges 0 0 0 0 0 EBIT -5 -4 -4 -5 1 Share in profits 0 0 0 0 0 Net financial items 0 0 0 0 0 Exchange rate dif. 0 0 0 0 0 Pre-tax profit -5 -4 -4 -5 1 Tax 0 0 0 0 0 Net earnings -6 -4 -4 -5 1

BALANCE SHEET 2017 2018 2019E 2020E 2021E Assets Current assets Cash in banks 6 7 3 0 0 Receivables 3 3 3 3 5 Inventories 1 1 1 1 2 Other current assets 0 0 0 0 0 Current assets 10 10 7 4 7 Fixed assets Tangible assets 3 2 1 1 2 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 0 0 0 0 0 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 0 0 0 0 0 O non-current assets 0 0 0 0 0 Total fixed assets 3 3 2 2 2 Deferred tax assets 0 0 0 0 0 Total (assets) 13 13 9 6 9 Liabilities Current liabilities Short-term debt 0 0 0 0 0 Accounts payable 4 2 2 2 5 O current liabilities 0 0 0 0 0 Current liabilities 4 2 2 2 5 Long-term debt 0 0 0 0 0 O long-term liabilities 2 1 1 1 1 Convertibles 0 0 0 0 0 Total Liabilities 5 3 3 3 6 Deferred tax liab 0 0 0 0 0 Provisions 0 0 0 0 0 Shareholders' equity 9 12 7 5 6 Minority interest (BS) -1 -2 -2 -2 -2 Minority & equity 8 10 5 3 4 Total liab & SE 13 13 9 6 9

FREE CASH FLOW 2017 2018 2019E 2020E 2021E Net sales 10 9 7 7 14 Total operating costs -15 -11 -9 -10 -12 Depreciations total -1 -1 -3 -1 -1 EBIT -5 -4 -4 -5 1 Taxes on EBIT 0 0 0 0 0 NOPLAT -6 -4 -4 -5 1 Depreciation 1 1 3 1 1 Gross cash flow -5 -3 -2 -3 2 Change in WC -1 -1 0 0 0 Gross CAPEX -2 0 -2 -1 -2 Free cash flow -8 -4 -4 -4 0 CAPITAL STRUCTURE 2017 2018 2019E 2020E 2021E Equity ratio 60% 74% 63% 46% 37% Debt/equity ratio 0% 0% 7% 10% 9% Net debt -6 -7 -2 0 0 Capital employed 2 3 3 3 4 Capital turnover rate 0.8 0.6 0.8 1.2 1.5 GROWTH 2017 2018 2019E 2020E 2021E Sales growth 0% -17% -22% 4% 106% EPS growth (adj) -5% 600% -25% -14% -116%

DATA PER SHARE 2017 2018 2019E 2020E 2021E EPS -0.10 -0.67 -0.51 -0.43 0.07 EPS adj -0.10 -0.67 -0.51 -0.43 0.07 Dividend 0.00 0.00 0.00 0.00 0.00 Net debt -0.10 -1.12 -0.26 0.00 0.00 Total shares 58.59 5.86 8.80 10.56 10.56 VALUATION 2017 2018 2019E 2020E 2021E EV 50.4 4.4 11.6 14.0 14.0 P/E -11.5 -2.5 -2.9 -3.3 20.7 P/E diluted -11.5 -2.5 -2.9 -3.3 20.7 P/Sales 6.3 1.1 1.9 2.2 1.1 EV/Sales 4.9 0.5 1.7 2.0 1.0 EV/EBITDA -11.1 -1.5 -6.0 -4.4 6.7 EV/EBIT -9.2 -1.1 -2.6 -3.0 18.8 P/BV 7.1 0.8 1.7 2.7 2.3

SHARE INFORMATION Reuters code NEON.OQ List NASDAQ Share price 1.5 Total shares, million 8.8 Market Cap, MUSD 12.8 MANAGEMENT & BOARD CEO Håkan Persson CFO Maria Ek IR David Brunton Chairman Ulf Rosberg

ANALYSTS Redeye AB Viktor Westman Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Havan Hanna [email protected]

SHARE PERFORMANCE GROWTH/YEAR 16/18E 1 month -39.6 % Net sales -19.1 % 3 month -47.3 % Operating profit adj -9.5 % 12 month -8.2 % EPS, just 129.8 % Since start of the year -13.2 % Equity -17.6 %

SHAREHOLDER STRUCTURE % CAPITAL VOTES Ulf Rosberg 18.0 % 18.0 % Peter Lindell 17.4 % 17.4 % Carl Grevelius 5.0 % 5.0 % AWM Investment 2.7 % 2.7 % Andreas Bunge 1.2 % 1.2 % Blackrock Inc 1.1 % 1.1 % Vanguard Group 0.5 % 0.5 % Geode Capital Management 0.2 % 0.2 % FMR LLC 0.2 % 0.2 % Credit Suisse Group 0.2 % 0.2 %

DCF VALUATION CASH FLOW, MUSD WACC (%) 12.7 % NPV FCF (2018-2020) -8 NPV FCF (2021-2027) 18 NPV FCF (2028-) 20 Non-operating assets 5 Interest-bearing debt 0 Fair value estimate MUSD 36 Assumptions 2017-2023 (%) Average sales growth 32.7 % Fair value e. per share, USD 4.0 EBIT margin -8.6 % Share price, USD 1.5


16

Redeye Rating and Background Definitions Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These

are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-

term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each

sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for

each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that

ranges from 0 to 5 rounded up to the nearest whole number.

The overall score for each category is then used to generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business

is a significant part of understanding the long-term drive of the company. It all comes down to doing business with

people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories: Passion, Execution, Capital Allocation,

Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories: Business Scalability, Market

Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong or

weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories: Earnings Power,

Profit Margin, Growth Rate, Financial Health, and Earnings Quality.


17

Redeye Equity Research team

Management Björn Fahlén

[email protected]

Håkan Östling

[email protected]

Technology Team Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Dennis Berggren

[email protected]

Havan Hanna

[email protected]

Kristoffer Lindström

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Eddie Palmgren

[email protected]

Oskar Vilhelmsson

[email protected]

Viktor Westman

[email protected]

Linus Sigurdsson (Trainee)

[email protected]

Editorial Jim Andersson

[email protected]

Eddie Palmgren

[email protected]

Mark Sjöstedt

[email protected]

Johan Kårestedt (Trainee)

[email protected]

Life Science Team Anders Hedlund

[email protected]

Arvid Necander

[email protected]

Erik Nordström

[email protected]

Klas Palin

[email protected]

Jakob Svensson

[email protected]

Ludvig Svensson

[email protected]

Oskar Bergman

[email protected]


18

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:

• For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date..

• An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any remuneration directly linked to such transactions.

• Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2019-11-19)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 12 10 2 3p - 4p 80 63 28 0p - 2p 10 29 72 Company N 102 102 102

CONFLICT OF INTERESTS

Westman owns shares in the company : Yes Havan owns shares in the company : No Redeye performs/have performed services for the Company and receives/have

received compensation from the Company in connection with this.

neonode - amazon s3 · 2020-04-10 · neonode has hopes for regaining traction in the infotainment...

Documents