Biometrics stocks this week: IWSY, BKYI, DBD, GTO, PREC, IDEX
The market retreat from the optimism of this past winter has been sharp, swift. The volatile triple digit swings continue to whiplash investors. Last week’s meltdown of a 400-point rally in just an hour after news broke of the FBI raid on Trump’s lawyer was one example. A theme in the investing press this past week has been the increasing loss of faith in Trump. Global fund managers talked about getting out of U.S. assets this week. The S&P 500 is now off about 10% from the peak on Jan. 26.
On the other hand the S&P 500 is trading at about 16 times earnings, which is a more rational value, is in-line with the long term trend. So there’s that.
A slew of announcements and notices popped up in the biometrics sector this week.
One interesting story comes from ImageWare, which announced year-end results recently. The company distributed a press release this week letting investors know that the company has signed some major new contract in the weeks since the end of the reporting period.
According to the company one client, a federal government one, has purchased an additional $730,000 worth of licenses. ImageWare also announced that some of its partners have also been making sales, include one to a privately held global corporation for an enterprise wide deployment to 55,000 employees over the year; a sale of a new cloud-based product to two federal government agencies for use by select employees; a purchase by Fujitsu for licenses for 1,000 employees. The release noted that on all four of these partner sales ImageWare will generate revenue on a per user/per month basis.
Commenting on the news story at Biometric Update, Tony Fisch, president of Tony Fisch Consulting, suggested the client in question is the Veterans Administration. An industry source suggested to Fisch this is the government agency that added the licenses. “That could grow into huge numbers as adoption is now increasing in terms of scale,” said Fisch. The same source also pointed out that Fujitsu is becoming a large customer of products sold to manage global customer support centers. Considering Fujitsu is the fifth largest IT company in the world, operates in 100 countries and is estimated to support 200,000,000 plus end user customers, that contract bodes well for ImageWare. “Note that all of the customers in this announcement will account for monthly recurring revenue. ImageWare could do $20 million in revenue according to recent equity research data. This would be five times revenue growth over 2017, huge multiples by Wall Street standards,” said Fisch. “This is great proof that biometric technology is being adopted as the new cornerstone of security and identity management.”
Elsewhere in the sector this week, BIO-key International insider Fong Wong Kwok purchased 91,820 shares of the company’s shares at an average cost of $3.60 per share, for a total value of $330,552.00. The purchase shows confidence in the company’s prospects, which are turning up right now.
It was recently reported in this space that BIO-key’s revenue increased 110% in 2017. Software license revenue rose 167%; hardware finger reader sales improved 50%, while a new line of biometric and Bluetooth-enabled locks made a solid first year contribution in 2017, reflecting about 5.5% of full year revenues. Since our last report the company has held a conference call. Analysts and executives discussed some interesting details about the current state of the business that are worth noting:
– Commenting on the bump in revenue in 2017 Mike DePasquale, CEO BIO-key, said that, “Overall, these results underpin our belief that after years of effort, our business and the biometrics industry at large are now approaching an inflection point.”
– DePasquale also discussed some key sectors for the company. “Historically, healthcare has been one of our larger opportunities and we expect solid sales traction from this vertical in 2018. We’re currently in dialog with one of our larger healthcare OEM partners to deploy our biometric software to protect electronic medical and health records for a hospital with over 5000 users,” said DePasquale.
– Another area of significant opportunity is in the financial sector. According to DePasquale, “Increasing cases of financial fraud, identity theft and cyber threats have caused these businesses to restructure their identity practices, and biometrics offers a particularly compelling solution to address their challenges… We’ve made very good progress in expanding [this sector] and have added eight new named banks, investment firms and insurance customers in 2017. We expect that expansion to continue into 2018.”
– A stated objective of the company in 2018 is to expand sales and marketing presence in the Asia Pacific region. “In addition to our Hong Kong subsidiary, we are working to set up support, sales and marketing teams to serve customers in India, Malaysia, Sri Lanka, Singapore and China,” said DePasquale. “It’s interesting… our cost to support our operations in both Hong Kong and China are dramatically lower than the cost to support operations here in the United States. That’s no secret. And potential now for biometrics in the Asian market is also significantly greater and larger just from a numbers perspective than it is here in the US. So I believe that from an efficiency perspective, investment perspective and a return perspective, we’re going to see really good results from our investments there, very, very positive results.”
– One analyst asked DePasquale to explain why the company’s locks stand out in a field that is stocked with competitors. In reply DePasquale identified three advantages. “The first is, we have a full line of locks, which address everything from travel to, I’ll call it, medium duty exterior capability, to light duty and designer type locks as well… We’re going to be introducing and begin selling our bike lock product as well in the second quarter. So that’s one… The second is distribution. We really have set up a number of very strong distribution channels that should get us more aggressively to brick and mortar and to e-tail. So that’s our second advantage. The third is, we are really very, very price competitive across the board and it’s our goal and objective to make these products affordable and available to virtually anyone here in the United States because we all — every one of us, whether you’re 12-years old or 95 years old, you have used or you are using some form of a padlock… and we think again that there’s tremendous opportunity to grow this business…”
– Another analyst asked if the locks could eventually be sold into the automotive sector. According to Pasquale, “The answer to that question is yes… The module that’s inside our Bluetooth lock and the module that’s inside our fingerprint lock can fundamentally be put and installed anywhere on any device. It’s all self-contained, which means that it’s battery operated, it’s battery driven, it can be recharged and so the application for those modules is pretty broad. So, the answer to that question is yes, we are pursuing OEM opportunities where those modules can be utilized for various and sundry applications.”
– Another investor wondered about the possibility of providing fingerprint readers to ATM maker NCR. Said DePasquale, “Our relationship with NCR is ongoing. I mean, it’s a long relationship. We’ve been doing business with them for eight years. We are doing business with them on the POS side, point of sale side. So, not on the ATM side… but could there be the introduction of a greater number of biometrically-enabled ATMs in the US… it could be. We’re seeing it on a widespread basis in Africa and beginning in Europe, maybe, it will happen here in the United States over time.”
Another mention of ATMs this past week was in a Reuters news report about how an investment manager boosted his fund’s stake in Diebold Nixdorf. The investor said he could see the share price of Diebold doubling within 18 months now that there is a new chief executive at the company. According to the report, the fund in question, the $1.2 billion Atlantic Investment Management, owns 8 percent of Diebold and bought more stock in February when shares traded near $15 a share. “The newly combined company is now set up for success,” the investor was quoted as saying. According to the report the recent U.S. tax cuts are a windfalls for banks and some of the funds are being earmarked for capital investments. JPMorgan announced it plans to open 400 new U.S. branches this year. “When they open the new branches they won’t be putting in old ATMs,” said the investor.
Also in the biometrics sector recently: The planned acquisition of Gemalto by French technology company Thales took an important step ahead. Last week Thales released its official offer to Gemalto shareholders. According to the offer documents Thales will pay EUR 51.00 per ordinary share and EUR 25.50 per American Depository Receipt. American Depository Receipts (ADRs) are a way for North American investors to buy into European shares that don’t trade on an exchange here. An investment bank will hold those shares in a trust and offer receipts on those shares to American investors, giving them exposure to the foreign stock. The Gemalto board fully supports the offer and “unanimously” recommends that shareholders tender their shares, and is committed to tendering their own shares. The acceptance period ends June 6. The deal goes through if 67 percent of Gemalto shares are tended. Said the chairman of Gemalto’s boards, “I am counting on the support of all the company’s shareholders for the upcoming general meeting.” The offer was announced in December.
Precise Biometrics released its annual report and announced its upcoming AGM. Precise wasn’t able to reproduce the results of 2016 when the company posted a profit on the year. For the full year of 2017 the company lost money. Like some other companies in the sector the board decided to change up CEOs. Shareholders will be asked to vote on a comp plan for incoming CEO, Stefan K. Persson, who was appointed in January and joins the company August 1st.
IDEX ASA has also just released it annual report for 2017. The board also resolved to call the annual general meeting be held May 9th, 2018.
There is a new addition to the Biometric Update stock index, Secunet Security Networks AG. According to a Bloomberg bio the company provides “consultancy and systems solutions for information security” in Germany and internationally. The company’s public sector division provides security products (including biometrics-based ones) to the armed forces, among other clients. More on Secunet in the weeks to come.