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AUSTRIACARD HOLDINGS | Playing its cards right

Leading and diversified provider of smart card payment and digital solutions – Austriacard (ACAG) is a leading provider of smart cards, personalization and payment solutions, as well as secure data management and digitalization services. The group is the result of the cross-border merger of two entities, namely the previously non-listed parent holding company Austriacard (owned until 2007 by the Central Bank of Austria) and its c71% Greek-listed subsidiary Inform Lykos S.A. (with 125-year track record in printing services). The enlarged new entity is a market leader in Europe, with a diversified geographic footprint (75% of sales from Europe, 8% from Americas, 17% from Turkey/MEA) and multi-sector exposure (financial institutions, telcos, industrials), with 7 production facilities and 8 personalization centers in several countries.

Card volume growth + improving mix + digitization = secular growth – The global cards industry is set to grow at c4% annually in the mid-term, as there is scope for card penetration to increase further (still at c46% of payments) thanks to rising bankarization in emerging markets, accelerating sophistication (e.g. dual-interface chip, contactless, biometric) and rising disposable income boosting niche segments (e.g. metals). In developed markets, there is still runway left for migration of cards to contactless and dual interface. As far as digitization is concerned, there are several avenues of growth thanks to the general digitization push and the EU funds available to bolster it.

9% revenue and c11% EBITDA CAGR over 2023e-27e – Given the industry volume growth, ACAG’s geographic expansion in US/UK/Turkey/MEA, its increasing penetration in Challenger/Neo banks and mix improvements (e.g. contactless, metals), we expect rising price/mix to bolster volume growth thus driving c10% CAGR in Card Solutions (64% of group sales). In the non-card business, we expect growth to be driven by the digital push and RRF projects. Across geographies (new breakdown under recently revamped corporate structure), we expect W. Europe, Nordics & Americas to drive growth (given the product mix), with Turkey and MEA also growing strongly. All these coalesce into c9% sales CAGR over 2023-27e, with revenue growth further enhanced by improving mix (contactless, biometric, metals, digitization revenues) and cost control, thus leading to 11% EBITDA CAGR in the same period, quite a strong growth profile.

Capital allocation flexibility – ACAG enjoys a healthy financial position, with net debt/EBITDA €50m after 2024e we forecast net debt/EBITDA to trend down to c1x thanks to an uptick in FCF generation post 2024e and our assumption of no additional M&A coupled with a balanced shareholder return policy (20% payout). Given the low gearing, there is much headroom for ACAG to either accelerate growth (organically/through M&A) or to pursue a more generous divi policy.

Valuation – With the shares retreating since August, the valuation is subdued at 15% discount vs the median valuation of the broad peer group. Flexing our WACC and perpetuity growth inputs by 0.5% yields a fair value range between c€7.0-€9.3/share.