E 2017E 2018E Revenue, MSEK Growth -4% 1% 89% 83% 25% EBITDA EBITDA margin -47% -32% -9% 11% 19%

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1 COMPANY ANALYSIS 4 March 2016 Summary (PAY.ST) enters the off-line market The Q4-report showed continued stable revenues of 6,7 msek from the PSP-operation which is at par with last year. EBIT was -4,0 msek vs -3,5 msek in Q The main reason for the deviation was increased costs for staff due to the implementation of the consumer credit service for SJ. Profit after tax was -4,6 msek vs -3,5 msek last year. List: Market Cap: Industry: CEO: Chairman: 1,2 Nordic Growth Market 175 MSEK Information Technology Daniel Ekberger Anders Persson OMXS 30 The implementation of the consumer credit platform for s major client SJ is proceeding according to plan. Live tests have been performed with a pilot since December and expects to see the first revenues from invoice and installments in the second quarter. The new contract is a potentially larger revenue contributor than s largest client, SJ. Updated financial projections has therefore resulted in a new estimated fair value of 1,90 SEK per share. The bear and bull case scenarios indicate values of 0,90 SEK and 3,10 SEK respectively. 1 0,8 0,6 0,4 0, Mar 02-Jun 31-Aug 29-Nov 27-Feb Redeye Rating (0 10 points) Management Ownership Profit outlook Profitability Financial strength 7.0 points 4.0 points 5.5 points 0.0 points 2.0 points Key Financials E 2017E 2018E Revenue, MSEK Growth -4% 1% 89% 83% 25% EBITDA EBITDA margin -47% -32% -9% 11% 19% EBIT EBIT margin -55% -39% -13% 9% 17% Pre-tax earnings Net earnings Net margin -54% -44% -17% 8% 16% E 2017E 2018E Dividend/Share EPS adj P/E adj EV/S EV/EBITDA Share information Share price (SEK) 0.8 Number of shares (m) Market Cap (MSEK) 175 Net debt (MSEK) 8 Free float (%) 53 % Daily turnover ( 000) 200 Analysts: Johan Ekstrom johan.ekstrom@redeye.com 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, Stockholm. Tel E-post: info@redeye.se

2 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 Profit 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. Profit Outlook Our Profit 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 Profit Outlook are: 1 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. 2

3 Table of Contents Q4 and Yearly results... 4 Q4 results... 4 Yearly results... 5 Consumer credit revenues from SJ in Q The new client potentially larger than SJ... 5 Financial projections... 7 Revenues... 7 Previous assumptions for s existing client base... 7 The new health care client... 8 Costs Valuation DCF-valuation Bear and Bull Case scenarios Investment Case Summary A rapidly growing market The new Entering a phase of growth Valuation Summary Redeye Rating

4 Q4 and Yearly results Q4 results delivered a Q4-report where the PSP-operation continued to deliver stable revenues. q-o-q results msek Q Q msek Transactionbased revenues 6,2 6,3-0,1 Other revenues 0,5 0,4 0,1 Total Revenues 6,7 6,7 0,0 Direct transaction costs 0,8 1,3-0,5 Production costs 0,9 0,7 0,3 Other external costs 2,7 2,7 0,1 Staff 5,8 5,0 0,7 EBITDA -3,6-3,0-0,6 Depreciation&Amortisation 0,4 0,5-0,1 EBIT -4,0-3,5-0,5 Financials net 0,7 0,0 0,6 Tax (22%) 0,0 0,0 Profit -4,6-3,5-1,2 Q4 revenues came in at 6,7 msek which is at par with last year. EBIT came in at -4,0 msek compared to -3,5 msek in Q The reason for the deviation was mainly increased costs for staff due to the implementation of the consumer credit service for s large client, SJ. Reported profit after tax was -4,6 msek vs -3,5 msek last year. The increased financial cost is due to a loan amounting to 12 msek that was taken in Q This loan was renegotiated after the fully subscribed rights issue in Q4 where received 19,0 msek after issuance costs. The financing costs are therefore expected to decrease by approximately 50% starting from H During 2015, has made investments in the consumer credit plattform amounting to 15,1 msek and the cash flow from the operation was -8,3 msek. The rights issue and the new loan left with 16,9 msek in cash and equivalents at the end of the year. Lower costs for financing and investments coupled with new revenues from the consumer credit service in 2016 leaves in a stable financial position. 4

5 Yearly results Revenues for 2015 were stable but profit were higher due to temporary costs in y-o-y results msek FY 2015 FY 2014 msek Transactionbased revenues 24,8 25,0-0,2 Other revenues 2,0 1,5 0,5 Total Revenues 26,7 26,4 0,3 Direct transaction costs 3,8 5,1-1,3 Production costs 3,7 2,6 1,1 Other external costs 8,4 10,6-2,1 Staff 19,4 20,7-1,2 EBITDA -8,6-12,5 3,9 Depreciation&Amortisation 1,7 2,0-0,2 EBIT -10,3-14,5 4,1 Financials net 1,5 0,1 1,3 Tax (22%) 0,0 0,0 Profit -11,8-14,6 2,8 On a yearly basis, reported total revenues of 26,7 msek from the PSP business vs 26,4 msek in Full year EBIT and profit after tax improved to -10,3 msek (-14,5 msek) and -11,7 msek (-14,3 msek) since 2014 was burdened by extraordinary costs related to the restructuring of the company and renegotiated contracts. The higher level of costs is primarily due to the increase in staff in order to handle the implementation and marketing of the new consumer credit offering. Revenues from the more profitable consumer credit business is expected to materialise in the second quarter of is expecting to see the first revenues from invoice and installments in the second quarter. Consumer credit revenues from SJ in Q2 Management reported that the implementation of the consumer credit platform for s major client SJ is proceeding according to plan. Live tests have been performed with a pilot since December. The tests have been successful and is expecting to see the first revenues from invoice and installments in the second quarter. Revenues from consumer credit are expected to grow during the quarter as SJ and prefers to ramp up the service gradually in order to handle demand in an orderly manner. The consumer credit offering is expected to be close to its full capacity at the end of the year. The new client potentially larger than SJ In the Q4-report finally announced the potential value of the contract with the Nordic client with operations in the healthcare sector. The client is the dominant player within its segment and has a 75% reach in a market that has an annual turnover of as much as 15 bn SEK. CEO Daniel 5

6 Ekberger mentions in the report that the clients business is well suited for consumer credit. The signed contract is therefore a potentially larger revenue contributor than s largest client, SJ. The new, off-line clients business is well suited for consumer credit. The financial projections and the base case valuation of 1,20 SEK 1, relies on a conservative scenario based on revenues from consumer credit coming solely from existing clients, primarily SJ. The signed contract with the new, potentially larger, client in the health care sector therefore has a significant impact on future potential revenue, profits and valuation. Updated financial projections and valuation is therefore presented in the sections below. 1 Described in the initiation report; Cashing in on e-commerce 6

7 Financial projections Revenues Previous assumptions for s existing client base As mentioned in the initiation analysis, SJ is by far the largest client among s 200 clients. The agreement with SJ to offer consumer credit will therefore have a large impact on future revenues for. The contract with SJ was signed on the 15th of April 2015 and the implementation of the platform started shortly after. Due to the size and the advanced requests from SJ, has dedicated ample resources for implementation during the fall of Starting from December 2015, live tests have been performed with a pilot and the outcomes have been positive. SJ will start offering their clients to pay through invoice and installments through their web site during the second quarter. s management has reiterated that they expect to see a gradual increase in revenues from invoice and installments during Q2. The reason is that both and SJ prefers to gradually roll out the service in order to handle demand in an orderly manner. As the implementation and planned launch of SJs consumer credit offering is proceeding according to plan, the previous assumptions of revenue progression are still valid. In short, the assumptions for s existing client base were the following; 1) Final distribution of payment methods at mature state; 80% of clients will pay using direct processing (credit card, direct bank transfer), 15% will pay using invoice and 5% will pay using installments. 2) Revenue sharing; is a small supplier while SJ is a large and well-known company that will be a valuable reference in s marketing. SJ is also paying for part of the development and installation costs. will therefore pass on as much as 2/3 of revenues from consumer credit to SJ. As SJ constitutes the lions part of s client base, it is assumed that will keep 1/3 of revenues from invoice and installments for the whole client base. 3) Duration of phasing; It will take 1,5 years from start of implementation to full usage of the consumer credit option. Consumer credit revenues will increase gradually from launch in Q until full maturity in Q

8 These assumptions are summarised in the table below. In the initiation report, the share of consumer credit in Q was expected to be 6% but this is decreased to 4% for conservative reasons. Apart from this minor change the previous assumptions still stand for s existing client base Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Processing (% of transactions) 100% 100% 100% 100% 100% 96% 86% 81% 80% 80% 80% 80% Consumer Credit (% of transactions) 0% 0% 0% 0% 0% 4% 14% 19% 20% 20% 20% 20% Invoice (75% share of cons credit) 0% 0% 0% 0% 0% 3% 11% 14% 15% 15% 15% 15% Installments (25% share of cons cred) 0% 0% 0% 0% 0% 1% 4% 5% 5% 5% 5% 5% The new health care client On the 6th of November in 2015, announced that they had signed an agreement to deliver consumer credit services for a dominant player in the health care sector in the Nordic region. The contract was important as this was an agreement with the first large client in the off-line market. thereby showed that their consumer credit service is applicable and attractive not only for e-tailers. The client has decided to remain anonymous during the implementation period as they see the product as a competitive advantage and prefers to announce the offering to their clients when the service is fully operational. However, the implementation of the platform is now proceeding at full speed. Considering the time for implementation at SJ it is reasonable to assume that the health care client will be receiving the first revenues starting from Q In the Q4-report in February, announced the potential value of the contract in the healthcare sector. The client is the dominant player within its segment and has a 75% reach in a market that has an annual turnover of as much as 15 bn SEK. CEO Daniel Ekberger also mentioned in the report that the clients business is well suited for consumer credit. He therefore expects the signed contract to be a potentially larger revenue contributor than s largest client, SJ. Based on the given information I have made the following assumptions; 1) Revenue sharing; The new client is the first large off-line client and can be seen as a valuable reference in this space. is still a small supplier while the client is dominant player in a multibillion industry. I have therefore assumed that, as in the case with SJ, will pass on as much as 2/3 of revenues. 8

9 2) Duration of phasing; The health care client will be able to offer consumer credit services to its respective clients starting from the middle of autumn. The first consumer credit revenues will therefore start to materialise in Q The time from initial launch to full penetration of the health care players client base will be longer than for SJ. The reason is that the health care player has a large number of smaller clients in the Nordic region. The process of marketing and establishing the service with each client is time consuming and I have therefore assumed roll-out of 36 months starting from launch date. The penetration will start at 10% in Q and have a linear progression until 100% in Q ) The revenue potential; The dominant health care player has a 75% reach in a market that has an annual turnover of as much as 15 bn SEK in Sweden. According to CEO Daniel Ekberger, the clients business is well suited for consumer credit. The client obviously also sees this potential which is the reason for implementing the service. The level of, and the desire to use, consumer credit increases with the size of the ticket. I therefore assume that the products/services the health care player is selling have high average sales prices which are suitable for consumer credit payments. The high level of consumer credit in a market with an annual turnover of around 15 bn SEK explains why the new client could potentially be larger than SJ. The annual turnover is also only refering to the Swedish market. obviously sees potential in the other Nordic markets as well. SJ constitutes the lions share of s current and, in particular, future revenues. The new client could therefore potentially double s revenues when the consumer credit offering has reached full penetration of the health care players client base. At this time, the name of the client has not been announced and there is lack of details. I have therefore chosen to make a conservative assumption where revenues from the new client reaches 37% of s total revenues at full penetration. 9

10 Revenue progression existing clients vs new client % % 35% 37% 35% 30% % 19% 23% 26% 25% 20% 15% % 10% 10% 5% 0 0% 0% 0% 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q4 Revenues s existing Clients Revenues Off-line client Off-line client share of total (%) 0% Costs The Q4-report gave some more indications of future costs levels and the following adjustments have been made in the financial projections. Cost of staff increased in Q4 by almost 1,5 msek to roughly 5,8 msek. The reason was an increase in staff at the support function ahead of the launch of SJs consumer credit launch in Q has hired additional staff for this function in Q1 and the higher level of costs is expected to remain going forward. Depreciation and amortisation costs will increase due to activation of development costs starting from the beginning of The level of 0,4 msek in Q4 will gradually move up to 0,5 msek in Financial costs will decrease due to the renegotian of the convertible. Financial net will therefore decrease from around 0,7 msek in Q to roughly 0,3 msek in tha latter part of The assumptions on sales and costs outlined above are summarised in the tables below. 10

11 Development in revenues, costs and profit Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 18Q Revenues Operational costs EBITDA Profit Summary (msek) Q1 Q2 Q3 Q Q1 Q2 Q3 Q Q1 Q2 Q3 Q Revenues 6,7 9,2 15,3 19,3 50,6 21,2 22,6 23,8 24,8 92,4 26,1 28,3 30,1 31,0 115,4 Operational costs 10,7 11,7 15,2 17,7 55,3 19,4 20,1 21,0 21,5 82,0 21,9 23,0 24,2 24,7 93,9 EBITDA -4,0-2,5 0,1 1,6-4,8 1,8 2,5 2,8 3,3 10,4 4,2 5,2 5,9 6,3 21,5 EBITDA-margin (%) -59% -27% 1% 8% -9% 8% 11% 12% 13% 11% 16% 18% 19% 20% 19% EBIT -4,5-3,0-0,4 1,1-6,7 1,3 2,0 2,3 2,8 8,5 3,7 4,7 5,4 5,8 19,6 EBIT-margin (%) -66% -32% -2% 6% -13% 6% 9% 10% 11% 9% 14% 17% 18% 19% 17% Profit -5,1-3,7-0,7 0,8-8,7 1,0 1,7 2,0 2,5 7,2 3,4 4,4 5,0 5,5 18,3 Profit margin (%) -76% -40% -4% 4% -17% 5% 7% 8% 10% 8% 13% 16% 17% 18% 16% 11

12 Valuation DCF-valuation The base case valuation relies on the assumptions outlined in the Financial Projections section and the following additional parameters. Comments are given below. DCF valuation Cash flow, MSEK WACC (%) 16.6 % NPV FCF ( ) 55 NPV FCF ( ) 180 NPV FCF (2026-) 164 Non-operating assets 17 Interest-bearing debt -19 Fair value estimate MSEK 396 Assumptions (%) Average sales growth 30.3 % Fair value e. per share, SEK 1.9 EBIT margin 19.2 % Share price, SEK WACC; A high discount rate of 16,6% is used in the DCF-valuation according to Redeyes rating system. The main reason is that the new business model is lacking track record and profits. The high discount rate depress future cash flows heavily. However, when starts showing profitability and recurring revenues from the consumer credit service, the rate will decrease and present value of future earnings will increase. - Average sales growth (%); Sales growth is high in the years 2016 and 2017 due to the increase in revenues from SJ and the health care client. This results in a high average growth of 30% in Revenue projections will be updated when signed contracts with new large clients are announced. The DCF-calculation indicates an estimated value of 1,90 SEK per share. - EBIT-margin; s business model is highly scalable which results in margin expansion and the average EBIT-margin in is expected to reach 19%. - A positive cash flow effect comes from the tax shield amounting to 320 msek. The discounted cash flow calculation indicates an estimated value of 1,90 SEK per share. 12

13 Bear and Bull Case scenarios In the Bear Case scenario it is assumed that no contracts with new clients are signed. In s existing client base, the share of consumers paying by credit is 10% instead of 20% used in the base case scenario. Out of these 10%, 8% pays by invoice and 2% by installments. This leads to a lower revenue growth and a long term EBIT-margin of 16%. The risk remains high and the WACC stays at an elevated level of 16,6%. This negative scenario leads to a DCF-based value 0,90 SEK per share. The Bull and Bear case scenarios indicates values of 3,10 and 0,90 SEK respectively It should be noted that there is a value in both the existing processing platform and the newly developed consumer credit platform. Acquiring a functioning payment platform would be interesting for both local and international companies that want to expand in the Nordics. Using the valuation on DIBS gives a value of 108 msek for the existing platform for processing 2. As the potential value of the consumer credit platform is much higher, it is fair to argue that the downside is limited even in a bear case scenario. s management has high ambitions and sees a number of potential new clients for their consumer credit service. In the Bull Case scenario it is assumed that delivers according to the projections made in the base case for the existing client base (including the new health care client). However, the bull case also includes a number of new clients. New clients are assumed to have the same share of consumer credit but from the start, ie 20%. The aggregated revenue from the new clients amounts to the same magnitude as SJ (the bulk of todays revenues) in the mature state and grows gradually from the middle of Having a proven and profitable business model also brings down the WACC which increases the present value of future earnings and renders a value of 3,1 SEK per share. A large contribution to the higher valuation comes from the lower discount rate. 2 See Initiation Report; Cashing in on e-commerce 13

14 Investment Case Summary E-commerce in Sweden has grown by ten times since 2013 and this structural growth shows no signs of abating A rapidly growing market is operating in a market with high structural growth. Purchasing of goods and services on the Internet is growing rapidly due to increasing penetration of connected devices, easy of use and increased security. E- commerce in Sweden has grown by ten times since 2013 and this structural growth shows no signs of abating. However, this evolving market is also exposed to changing consumer patterns driven by technological advancements. E-retailers are exposed to fierce competition on the Internet due to comparison sites, lack of physical distance ( just a click away ) and international competitors entering the domestic markets. s service enables e-retailers to receive a share of the proceeds from consumer credit and to keep the ownership of the customer To be successful on-line, the handling of payments is an important factor for e-retailers. To adress this, has developed a consumer credit service which enables the e-retailers to grow sales and increase profit margins substantially. In short, s service is enabling e-retailers to receive a share of the proceeds from consumer credit and to keep the ownership of the customer. The latter is important since the payment process can be used as a sales tool and increase repeat sales. The new Consumer Credit offering, Invoice as a service, was launched and marketed towards existing and new clients from the beginning of 2015 The new Since Daniel Ekberger took the helm in February 2013 has transformed from a PSP into a Fin Tech company fully focused on consumer credit solutions. Mr Ekberger formed a new management team and a new strategy was developed. The first part of the business plan was to restructure the company, integrate the acquired consumer credit platform and finalise the new service offering. This was completed in 2014 and the new Consumer Credit offering, Invoice as a service, was launched and marketed towards existing and new clients from the beginning of The the proceeds from invoices and installments is several times higher than for direct payments Entering a phase of growth is currently implementing the consumer credit service for their largest client SJ, the national railway operator in Sweden. SJs clients will be able to pay by invoice or installments, through s platform, by the beginning of This will have considerable impact on revenues since the proceeds from invoices and installments is several times higher than for direct payments. is also conducting a number of pilot tests for other clients which could lead to additional revenue growth in

15 The new contract is a potentially larger revenue contributor than s largest client, SJ, and therefore has significant impact on future revenues and valuation. Valuation is currently allocating ample resources on the implementation and testing of the consumer credit platform for SJ. The project is of paramount importance to as it is the first large assignment showing the success of the new business model. When can show the benefits of the revenue sharing model, in actual figures, this will obviously facilitate the sales process to new clients. is in discussions with a number of new clients and recently signed a contract with a dominant player in the Nordic off-line health care segment. The financial projections and the base case valuation in the initial report (1,20 SEK) relied on a conservative scenario based on revenues coming solely from existing clients, primarily SJ. The new contract is a potentially larger revenue contributor than s largest client, SJ, and therefore has significant impact on future potential revenue, profits and valuation. Updated projections has resulted in an estimated fair value of 1,90 SEK per share. The bear and bull case scenarios indicate values of 0,90 SEK and 3,10 SEK respectively Updated financial projections and valuation has therefore resulted in a new estimated fair value of 1,90 SEK per share. The bear and bull case scenarios indicate values of 0,90 SEK and 3,10 SEK respectively. Potential positive triggers, that would lead to increases in growth projections and company value, are announcements of additional contracts. One potential negative trigger lies in the fact that SJ is by far the largest among their 200 clients. The development of consumer credit from SJ will therefore have a large impact on future total revenues for. Risks on the downside would be if the implementation of SJs consumer credit platform is delayed or if the usage of consumer credit among SJs customers is lower than expected. Announcements of additional contracts from new, large clients would therefore be positive both in terms of higher revenue but also lower company risk. 15

16 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 No changes are made in the report Management 7.0p Management has a profound understanding of the fin tech market and has developed a competitive product offering. Managment has also delivered on its new business plan and been consistent in communicating its vision. What brings down the rating is the lack of track record for the new business model and the consumer credit service. When Invoice as a Service is fully operational and the business model delivers recurring revenues this will increase the rating. Ownership 4.0p The operative management is showing a high conviction by owning as much as 14,8% of the company. However, there are no large active shareholders in the company. There are also no institutional investors and the board has a fairly low ownership in the company. One or several institutional investors or a large, active owner would increase the rating. Profit outlook 5.5p has a competitive product offering and is operating in a market with high structural growth. The potential to deliver high profit growth is therefore high. However, doesn't have a dominant position in the market and currently has no recurring income from long term clients in the consumer credit segment. Profitability 0.0p has invested heavily in the restructuring of the company and in product development. is therefore leaving an unprofitable period and entering a period of improving margins and profitability. When starts showing positive cash flow and consistency in profits this rating will increase rapidly. Financial strength 2.0p is expecting the proceeds from the last rights issue to cover operational costs until profitability. However, the current lack of profitability and the dependance on one large client lowers the rating. There is also a risk for potential additional rights issues if the implementation for SJ is delayed. 16

17 Income statement E 2017E 2018E Net sales Total operating costs EBITDA Depreciation Amortization Impairment charges EBIT Share in profits Net financial items Exchange rate dif Pre-tax profit Tax Net earnings Balance E 2017E 2018E 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 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 Total liab & SE Free cash flow E 2017E 2018E Net sales Total operating costs Depreciations total EBIT Taxes on EBIT NOPLAT Depreciation Gross cash flow Change in WC Gross CAPEX Free cash flow Capital structure E 2017E 2018E Equity ratio 48% 37% 16% 15% 28% Debt/equity ratio 6% 81% 268% 221% 23% Net debt Capital employed Capital turnover rate DCF valuation Cash flow, MSEK WACC (%) 16.6 % NPV FCF ( ) 47 NPV FCF ( ) 183 NPV FCF (2026-) 168 Non-operating assets 17 Interest-bearing debt -19 Fair value estimate MSEK 396 Assumptions (%) Average sales growth 30.8 % Fair value e. per share, SEK 1.9 EBIT margin 17.3 % Share price, SEK 0.8 Profitability E 2017E 2018E ROE -133% -59% -45% 39% 58% ROCE -109% -35% -14% 14% 33% ROIC -187% -74% -26% 38% 163% EBITDA margin -47% -32% -9% 11% 19% EBIT margin -55% -39% -13% 9% 17% Net margin -54% -44% -17% 8% 16% Data per share E 2017E 2018E EPS EPS adj Dividend Net debt Total shares Valuation E 2017E 2018E EV P/E P/E diluted P/Sales EV/Sales EV/EBITDA EV/EBIT P/BV Share performance Growth/year 14/16e 1 month 1.2 % Net sales 38.3 % 3 month 17.1 % Operating profit adj % 12 month 41.4 % EPS, just % Since start of the year % Equity -4.2 % Shareholder structure % Capital Votes Avanza Pension 7.4 % 5.6 % Catella Bank 5.5 % 4.1 % Kjell-Åke Sundqvist 5.0 % 3.7 % Daniel Ekberger 4.9 % 3.7 % Nordnet Pensionsförsäkring 4.9 % 3.7 % Ancoria Insurance 4.6 % 3.4 % Bjarne Ahlenius 4.4 % 3.3 % Robert Norling 4.2 % 3.1 % JP Morgan Bank 3.1 % 2.3 % UBS Switzerland / Clients Account 2.7 % 2.1 % Share information Reuters code PAY.ST List Nordic Growth Market Share price 0.8 Total shares, million Market Cap, MSEK Management & board CEO CFO IR Chairman Financial information Daniel Ekberger Bjarne Ahlenius Anders Persson Q1 report May 10, 2016 Q2 report August 25, 2016 Analysts Johan Ekstrom johan.ekstrom@redeye.com Redeye AB Mäster Samuelsgatan 42, 10tr Stockholm Growth E 2017E 2018E Sales growth -4% 1% 89% 83% 25% EPS growth (adj) 0% -38% -26% -182% 153% 17

18 Revenue & Growth (%) EBIT (adjusted) & Margin (%) E 2017E 2018E 120,0% 100,0% 80,0% 60,0% 40,0% 20,0% 0,0% -20,0% E 2017E 2018E 30,0% 20,0% 10,0% 0,0% -10,0% -20,0% -30,0% -40,0% -50,0% -60,0% Net sales Net sales growth EBIT adj EBIT margin Earnings per share Equity & debt-equity ratio (%) 0,1 0,1 0,6 300,0% 0,05 0,05 0,5 0,4 250,0% 200,0% E 2017E 2018E 0 0,3 0,2 150,0% 100,0% -0,05-0,05 0,1 50,0% -0,1-0, E 2017E 2018E 0,0% EPS, unadjusted EPS, adjusted Equity ratio Debt-equity ratio Sales division Geographical areas Conflict of interests Johan Ekstrom owns shares in the company : No Company description Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this. 18

19 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, effective from 30 days before its covered company comes with financial reports, such as quarterly reports, year-end reports, or the like, to the date Redeye publishes its analysis plus two trading days 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. 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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 decisionmaking. Redeye Rating ( ) Rating Management Ownership Profit outlook Profitability Financial Strength 7,5p - 10,0p ,5p - 7,0p ,0p - 3,0p Company N 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. 19