Vectron Systems — Positive outlook

Vectron Systems (DB: V3S)

Last close As at 28/03/2024

4.61

−0.05 (−1.07%)

Market capitalisation

37m

More on this equity

Research: TMT

Vectron Systems — Positive outlook

Vectron Systems has so far weathered the disruption caused by COVID-19, reporting 5% revenue growth in H120 despite weaker demand in Q2. With lockdown restrictions easing and deadlines for compliance with German regulations fast approaching, the company expects demand to improve through H220 with a significant pick up in revenues in FY21.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Vectron Systems

Positive outlook

Technology

Scale research report - Update

3 September 2020

Price

€9.7

Market cap

€78m

Share price graph

Share details

Code

V3S

Listing

Deutsche Börse Scale

Shares in issue

8.04m

Net cash at 30 June 2020

€6.2m

Business description

Vectron Systems produces high-end, proprietary point of sale systems for the hospitality sector. It is diversifying into providing systems designed for online marketing services, which have been given impetus recently through partnerships with DeutschlandCard and Metro.

Bull

Flexible, comprehensive POS systems.

Strong position in the DACH hospitality market.

Partnership with DeutschlandCard.

Bear

Dependent on the German economy.

Management owns more than 50% of Vectron.

Low level of recurring revenues.

Analyst

Katherine Thompson

+44 203 077 5730

Vectron Systems has so far weathered the disruption caused by COVID-19, reporting 5% revenue growth in H120 despite weaker demand in Q2. With lockdown restrictions easing and deadlines for compliance with German regulations fast approaching, the company expects demand to improve through H220 with a significant pick up in revenues in FY21.

Demand improving since May

Vectron reported H120 revenue growth of 4.9% y-o-y, helped by a strong first quarter (Q1 revenues +28% y-o-y). COVID-19 lockdowns started to affect demand in March with a further month-on-month decline in April, but as the catering industry started returning to a more normal situation, demand improved from May. By June it was still below normal seasonal levels but has continued to gradually improve. Excluding one-off costs for the February fund raise (€10.6m net), the H120 EBITDA loss of €0.9m was below the H119 loss of €1.0m. The company continues to invest in its digital business, which should provide a growing level of recurring revenue. Helped by the fund raise, end H120 net cash was €6.2m.

Company reinstates guidance for FY20–22

Earlier in the year, the company withdrew guidance due to the difficulty in forecasting in the midst of the pandemic. In mid-August, Vectron published new guidance, with the expectation for revenues of €25–29m in FY20, rising to €50m in FY21 and €65m in FY22 as customers replace or retrofit systems to meet German regulations. While the company estimates that an EBITDA loss is likely for FY20, it expects a return to profitability in FY21.

Valuation: Replacement cycle the trigger

Consensus forecasts are within the guidance range for FY20 and slightly ahead of guidance for FY21 and FY22, implying confidence in the expected rebound in demand. As Vectron is expected to report a loss for FY20, valuation metrics for that year are less relevant. Based on FY21 forecasts, Vectron is trading at a discount to its peer group on all metrics. This implies the market is discounting management’s guidance. Evidence that the expected replacement cycle has started will be key to reducing the valuation discount; increasing uptake of its digital solutions should also drive share price upside.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/18

24.8

(5.5)

(0.59)

0.00

N/A

N/A

12/19

25.2

(2.0)

(0.19)

0.00

N/A

N/A

12/20e

27.5

(3.6)

(0.32)

0.00

N/A

N/A

12/21e

51.8

8.5

0.71

0.05

13.7

0.5

Source: Refinitiv

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Review of H120 results

Exhibit 1: Half-yearly results highlights

€m

H119

H120

y-o-y

Revenues

12.01

12.60

4.9%

Changes in inventory of finished goods & WIP

(0.39)

0.21

(152.7%)

Other income

0.16

0.17

1.8%

Material costs

(4.91)

(5.31)

8.3%

Personnel costs

(4.50)

(4.43)

(1.6%)

Other operating expenses

(3.40)

(4.55)

33.9%

EBITDA

(1.03)

(1.32)

28.9%

Depreciation and amortisation

(0.22)

(0.19)

(11.4%)

Operating profit

(1.24)

(1.52)

21.8%

Interest expense

(0.09)

(0.08)

(12.0%)

PBT

(1.34)

(1.60)

19.5%

Tax

(0.01)

(0.00)

(75.0%)

Net income

(1.34)

(1.60)

18.9%

Operating margin

(10.4%)

(12.0%)

EBITDA margin

(5.7%)

(15.0%)

Tax rate

(0.6%)

(0.1%)

Material costs/revenue

40.9%

42.2%

Cash & cash equivalents

13.814

16.211

17.4%

Bank debt

10.842

10.000

(7.8%)

Net cash

2.972

6.211

109.0%

Source: Vectron Systems

Vectron Systems reported 4.9% year-on-year growth in revenues in H120, despite COVID-19 disruption. Revenues in Q120 of €7.5m were 27% higher year-on-year and 2% lower quarter-on-quarter. Q220 revenues of €5.1m were 17% lower year-on-year and 32% lower quarter-on-quarter. As a number of staff were put on short working hours in Q220, this resulted in slightly lower staff costs year-on-year. H120 results included a €410k one-off cost incurred in the February fundraise and a further €1.7m invested in developing the digital business. Excluding these costs, the core business remains profitable.

The company noted that the number of customers using bonVito digital services increased 12.6% through H1 to 6,279.

In H1 Vectron saw a €4.9m cash outflow from operating activities due to a €3.5m increase in working capital requirements. In anticipation of strong demand from H220, the company has increased inventory. Capex of €0.8m in H120 mainly comprised the capitalisation of Duratec systems, which are provided to customers free as part of the Duratec Digital World solution. The systems are depreciated over 72 months.

The company had a net cash position of €6.2m at the end of H120. We note the €10m bank loan is due to be repaid by the end of this year.

Business update

Demand bottoms out in Q220

As Vectron’s point of sale (POS) systems are predominantly used by the catering industry (bakeries, cafés, restaurants and bars), sales from March were significantly affected by COVID-19 restrictions. While many bakeries remained open, other hospitality venues had to close completely and Vectron saw sales decline on a month-on-month basis in March (10%) and April (25%). Lockdown in Germany did not last as long as some European countries, so from May Vectron started to see a pick-up in business. By June, the highest selling week was still 20% below normal seasonal levels.

Further grace period granted for German regulations

At the end of 2016, the law on the protection against manipulation of digital background recordings (Gesetz zum Schutz vor Manipulationen an digitalen Grundaufzeichnungen) came into force. This prescribes that all cash registers must be fitted with a certified technical security device (TSE) from 1 January 2020. For Vectron customers, this either means buying new systems that are compliant or retrofitting existing systems with a TSE.

Detailed technical requirements for this law were in draft format for some time, with the final version only published in August 2019. This meant TSE manufacturers were not able to finalise the design and certification of their devices until late 2019, preventing customers from being able to upgrade to newer systems. In November 2019, the Federal Ministry of Finance published the final timetable for the implementation of the Kassensicherungsverordnung (KassenSichV – regulations for the approval of technical requirements for electrical recording and safety systems in business dealings) confirming the 1 January 2020 start date and a grace period until 30 September 2020, after when fines of €25k could be imposed. As COVID-19 has been so disruptive to the retail and catering industries, various industry bodies lobbied the government to extend this grace period. All states, bar Bremen, have extended the period to 31 March 2021, although business owners will need to prove they placed orders for new POS systems/retrofits by 30 September 2020.

Outlook and changes to consensus estimates

In mid-August, management reinstated guidance for the next three years (see table below). For FY20, the guidance implies H220 revenues are at least as high as H120 revenues and that profitability will improve in H220. The jump in revenues from FY20 to FY21 is based on the assumption that customers will need to either replace or retrofit their POS systems according to the regulations described above and that this process will happen over the next two years or so.

Exhibit 2: Company outlook

€m

FY20e

FY21e

FY22e

Revenues

25–29

50

65

EBITDA

-2.0 to +0.25

10

16.25

EBITDA margin

-8.0% to +0.7%

20%

25%

Source: Vectron Systems

The table below shows consensus forecasts over the same time period. Forecasts for FY20 are in within the guidance range whereas forecasts for FY21 and FY22 are slightly ahead of guidance.

Exhibit 3: Consensus forecasts

€m

FY20e

FY21e

FY22e

Revenues

27.5

51.8

66.6

EBITDA

(1.7)

10.7

16.0

PBT

(3.6)

8.5

12.7

EPS (€)

(0.32)

0.71

1.04

DPS (€)

0.00

0.05

0.15

Revenue growth

9%

88%

28%

EBITDA margin

-6.0%

20.7%

24.0%

PBT margin

-12.9%

16.4%

19.0%

Source: Refinitiv

Valuation

Exhibit 4: Peer group valuation multiples

Company

Quoted

ccy

Share

price

Market

cap (m)

EV

(m)

EV/sales

EV/EBITDA

P/E

Div yield

EBITDA margin

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

Vectron Systems

9.7

78

72

2.6

1.4

N/A

6.7

N/A

13.7

0.0%

0.5%

-6.0%

20.7%

Ingenico Group

142.2

9,035

10,679

3.6

3.3

17.7

16.0

29.8

26.1

0.8%

1.0%

20.3%

20.9%

NCR Corp

US$

20.4

2,624

6,083

1.0

0.9

6.8

6.0

12.7

8.9

14.1%

15.3%

Aures Technologies

13.6

54

66

0.7

0.6

11.7

5.0

92.7

9.0

0.0%

4.1%

5.9%

11.4%

PayPoint

GBp

630.0

431

408

3.7

3.4

7.4

6.6

12.2

10.7

7.7%

6.2%

50.4%

51.7%

Square

US$

159.6

70,770

70,309

9.4

7.3

227.3

102.6

290.8

132.4

0.0%

0.0%

4.1%

7.1%

GrubHub

US$

72.4

6,676

6,636

4.0

3.5

84.1

43.6

N/A

391.4

0.0%

0.0%

4.7%

7.9%

Just Eat Takeaway.com

93.2

13,829

13,912

6.8

5.2

55.3

34.4

161.3

75.4

0.0%

0.0%

12.3%

15.0%

Eagle Eye Solutions

GBp

249.0

64

66

3.3

2.8

21.8

17.4

N/A

249.0

0.0%

0.0%

15.0%

15.8%

Delivery Hero

90.0

17,875

17,038

7.1

4.3

N/A

N/A

N/A

N/A

0.0%

0.1%

-24.5%

-7.1%

Average

4.4

3.5

54.0

28.9

99.9

43.8

1.1%

1.4%

11.4%

15.3%

Median

3.7

3.4

19.7

16.7

61.3

18.4

0.0%

0.0%

12.3%

15.0%

Source: Refinitiv. Note: Priced at 1 September.

As Vectron is expected to report a loss for FY20, valuation metrics for that year are less relevant. Based on FY21 forecasts, Vectron is trading at a discount to its peer group on all metrics. This implies the market is discounting management’s guidance. Evidence that the expected replacement cycle has started will be key to reducing the discount to peers.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on Vectron Systems

View All

Latest from the TMT sector

View All TMT content

Research: Financials

Appreciate Group — Positioning for market recovery

The COVID-19 pandemic had a modest impact on Appreciate Group’s FY20 results, which were in line with revised guidance. The impact on FY21 will be material and although there is a clear ongoing recovery in customer activity, peak Q3 trading will be crucial. No FY20 DPS was declared, but ongoing investment for medium-term digital-based growth should position the group well for the expected continuing recovery.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free