Vectron Systems — Growth in a tough market

Vectron Systems (DB: V3S)

Last close As at 21/12/2024

4.61

−0.05 (−1.07%)

Market capitalisation

37m

More on this equity

Research: TMT

Vectron Systems — Growth in a tough market

Despite the effect of lockdowns on the hospitality industry in FY20, Vectron reported 10% revenue growth. After a dip in Q220, revenue rebounded as customers sought to meet German point-of-sale (POS) system security regulations. Recurring revenue, while still low, is growing as customers adopt Vectron’s digital services. The combination of gradual lockdown relaxations and the ongoing regulatory-driven replacement cycle is expected to drive strong growth in revenue and profitability for FY21/22.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Vectron Systems

Growth in a tough market

Technology

Scale research report - Update

6 May 2021

Price

€11.94

Market cap

€96m

Share price graph

Share details

Code

V3S

Listing

Deutsche Börse Scale

Shares in issue

8.0m

Net cash at end FY20

€8.3m

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

Despite the effect of lockdowns on the hospitality industry in FY20, Vectron reported 10% revenue growth. After a dip in Q220, revenue rebounded as customers sought to meet German point-of-sale (POS) system security regulations. Recurring revenue, while still low, is growing as customers adopt Vectron’s digital services. The combination of gradual lockdown relaxations and the ongoing regulatory-driven replacement cycle is expected to drive strong growth in revenue and profitability for FY21/22.

FY20: Investment continued despite pandemic

Vectron reported 10% revenue growth in FY20; retrofitting of systems to meet German regulations outweighed the decline in business due to the pandemic. The EBITDA loss widened to €2.2m from €1.4m in FY19 as the company increased investment in its digital services offering. Having raised €11m through a fund raise in February 2020, Vectron closed the year with a net cash position of €8.3m.

Promising start to FY21

Vectron reported Q121 revenue of €8.6m (+15% y-o-y, +13% q-o-q) and EBITDA of €0.6m (Q120 loss of €0.7m), confirming a return to profitability. Recurring revenue increased as more customers adopted digital services (c 9% in FY20, c 12% in Q121). The company’s unconsolidated subsidiary, bonVito also made a good start to the year, with revenue of €0.8m up 14% y-o-y and EBITDA of €0.2m. Vectron plans to consolidate bonVito later this year, effective 1 January 2021.

Valuation: Replacement cycle the trigger

Management has no formal guidance in place for FY21/22 due to the uncertainty around the timing of lockdowns being relaxed. Consensus forecasts have not changed since results were reported, factoring in strong growth for both FY21 and FY22 and a rebound in profitability. On these forecasts, the stock is trading at a discount to peers on all valuation metrics. Continued evidence that the expected replacement cycle is under way and the increasing uptake of digital solutions should help close the valuation discount.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/19

25.2

(2.0)

(0.19)

0.00

N/A

N/A

12/20

27.8

(2.6)

(0.26)

0.00

N/A

N/A

12/21e

46.9

5.8

0.47

0.07

25.6

0.5

12/22e

65.7

12.1

0.99

0.13

12.1

1.0

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 FY20 results

Exhibit 1: FY20 financial highlights

€m

2019

2020

Revenues

25.17

27.77

Rev growth

1.4%

10.3%

EBITDA

(1.39)

(2.19)

EBITDA margin

(5.5%)

(7.9%)

EBIT

(1.78)

(2.58)

EBIT margin

(7.1%)

(9.3%)

PAT

(1.39)

(2.07)

EPS (€)

(0.19)

(0.26)

Net cash

0.9

8.3

Source: Vectron Systems

Despite the impact on the hospitality industry in FY20, Vectron managed to grow revenues by 10% y-o-y. There were two opposing factors at play in the year:

Tailwinds from the legal requirement in Germany to embed a technical security device in all POS systems.1 With the deadline for doing this extended to 31 March 2021, this stimulated demand for retrofitting POS systems and new systems from the end of 2019 and through 2020.

See Positive Outlook, 3 September 2020 for further detail.

Headwinds from the effect of lockdowns on customers’ businesses. Vectron measured2 that in 2020 restaurants saw 31% less business and bakeries (which rely less than restaurants on in-house dining) 12% less. This had the combined effect of delaying investment decisions for new hardware and reducing the volume of online transactions (eg reservations, ordering).

Takings through the POS systems for customers using Vectron’s online systems.

Exhibit 2: Quarterly revenue

€m

Q120

Q220

Q320

Q420

Q121

Revenue

7.5

5.1

7.6

7.6

8.6

y-o-y growth

27%

-17%

38%

-1%

15%

Source: Vectron Systems

Exhibit 2 shows the quarterly progression of revenues. Q120 revenue grew 27% y-o-y as customers prepared for the new regulations in Germany. In Q220, revenues dropped 17% y-o-y and 32% q-o-q as the pandemic restrictions hit customers. Revenues rebounded again in Q320 and stayed at a similar level in Q420. The company has just released Q121 headline numbers, which confirm that revenue grew 15% y-o-y.

Helped by an €11m fund raise in February 2020 before the pandemic hit, the company was able to continue to invest in its digital business, spending €4.4m compared to €3.5m in 2019. Material costs increased 9.3% y-o-y, just below the rate of sales growth. Staff costs increased 5.7% y-o-y whereas other operating costs increased 34.6% y-o-y. The increase in other operating expenses was from the combination of increased external support (consulting and sales service) relating to the shift of the business model towards digital services and costs relating to the February 2020 fund raise. Management expects these costs to revert to nearer the 2019 level in 2021. This resulted in an expansion in the EBITDA loss to €2.2m in FY20 from a €1.4m loss in FY19. Depreciation and amortisation was flat at €0.4m, resulting in an operating loss of €2.6m (FY19: loss €1.8m). After net interest expenses of €0.2m and a tax credit of €0.7m Vectron reported a net loss of €2.1m.

Cash at year-end stood at €8.3m and there was no debt (a €10m loan was repaid in December 2020). Since year-end, the company has taken out a €3m KfW loan with a two-year term.

Q121 shows uptick in performance

As shown in Exhibit 2, Vectron saw 15% y-o-y revenue growth in Q121. The company reported EBITDA of €0.6m (margin 7%), compared to a loss of €0.7m in Q120.

Business update

Vectron continues to make progress with its strategy to offer digital services to its customer base. By adding recurring revenue streams (digital services) to the one-off hardware purchase, Vectron should be able to generate more predictable revenue streams and be less tied to hardware replacement cycles. The company noted that in FY20, recurring revenue made up just under 9% of total revenue, rising from less than 5% in January 2020 to 12% in Q121.

The company noted that most customers retrofitting their systems to meet German fiscal regulations also signed up for Vectron’s digital package, which includes various digital services, cloud storage of POS data and a reporting app. The number of customers using this package grew from c 2,000 at the start of the year to more than 10,000 by the end of the year. Vectron now plans to include an entry-level digital package with every new POS sale.

bonVito profitability improving; soon to be consolidated

bonVito is the business that runs Vectron’s online loyalty services platform. The subsidiary was created in 2012 and has not been consolidated to date, partly so it can take advantage of tax losses. During 2020, it increased the number of customers using its service from 5,576 to 6,605 (+19%). The table below shows the progress this business has made over recent years. It is now consistently profitable and has exhausted all tax losses. Vectron plans to consolidate this business later this year, effective 1 January 2021.

Exhibit 3: bonVito subsidiary financial performance

€k

2016

2017

2018

2019

2020

Revenue

2,950

2,850

EBITDA

634

662

EBITDA margin

21.5%

23.2%

Operating profit

538

575

Operating margin

18.2%

20.2%

Net profit/(loss)

(118)

(111)

69

370

333

Equity value

164

54

123

493

826

Source: Vectron Systems

The company has indicated in Exhibit 4 how Q121 and Q120 revenue and EBITDA would look on a consolidated basis. It has also disclosed the combined level of recurring revenue, which has increased from 12.5% of consolidated revenue in Q120 to 17.8% in Q121.

Exhibit 4: Consolidated Q1 results

€m

Q121

Q120

Revenue

Vectron

8.6

7.5

bonVito

0.8

0.7

Consolidation adjustment

(0.4)

(0.2)

Group revenue

9.0

8.0

EBITDA

Vectron

0.6

(0.7)

bonVito

0.2

0.2

Consolidation adjustment

0.0

0.0

Group EBITDA

0.8

(0.5)

Recurring revenue

1.6

1.0

Recurring revenue/group revenue

17.8%

12.5%

Source: Vectron Systems

Duratec Digital World adoption grows

By the end of FY19, Vectron had signed up several hundred customers to use the Duratec Digital World solution; this increased to more than a thousand by the end of FY20. The solution combines a Duratec POS system with online services from Vectron and partners; the Duratec hardware is supplied free in return for per transaction fees for digital services such as table reservations. In FY21, the company is planning to expand these digital services to its main Vectron POS system.

Outlook and changes to consensus forecasts

In August 2020, the company reinstated guidance. For FY20, management expected revenue of €25–29m and EBITDA of -€2.0m to €0.25m. For FY21, management expected revenue of c €50m with an EBITDA margin of c 20% and for FY22, revenue of c €65m and an EBITDA margin of c 25%. In February 2021, the company decided that due to continuing disruption from the pandemic, it would withdraw its guidance for FY21 and FY22. However, it remains positive the new German regulations around POS systems have created pent-up demand for systems (with an estimated 50% of systems not yet compliant), and once lockdowns are lifted and business returns to more normal operation, customers will need to place orders. Consensus forecasts have not changed since the annual report and Q121 results were published.

Exhibit 5: Consensus forecasts

€m

FY21e

FY22e

Revenues

46.9

65.7

EBITDA

7.9

15.5

PBT

5.8

12.1

EPS (€)

0.47

0.99

DPS (€)

0.07

0.13

Revenue growth

69%

40%

EBITDA margin

16.9%

23.6%

PBT margin

12.4%

18.4%

Source: Refinitiv

Valuation

Vectron is trading at a discount to peers on all valuation metrics, with EBITDA profitability forecast to be at the upper end of its peer group. Continued evidence that the expected replacement cycle is under way and the increasing uptake of digital solutions should help close the valuation discount.

Exhibit 6: Peer group financial and valuation metrics

Company

Quoted

Share

Market

EV

EV/Sales

EV/EBITDA

P/E

Div yield

EBITDA margin

ccy

price

Cap m

m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

Vectron Systems

EUR

11.94

96

88

1.9

1.3

11.1

5.7

25.6

12.1

0.5%

1.0%

16.9%

23.6%

Worldline

EUR

80.32

22371

26675

5.3

4.8

20.8

17.6

33.1

27.6

0.0%

0.0%

25.2%

27.4%

NCR Corp

USD

46.4

6079

9480

1.4

1.3

8.3

7.3

17.5

13.5

16.9%

18.0%

Aures Technologies

EUR

24.3

97

104

1.0

0.9

9.0

7.0

18.6

13.0

2.3%

3.6%

10.7%

12.1%

PayPoint

GBp

600.0

409

391

4.0

3.5

8.1

6.9

13.6

11.7

5.2%

5.8%

49.4%

49.9%

Square

USD

243.7

110963

110161

7.7

6.5

154.4

96.3

195.7

128.0

0.0%

0.0%

5.0%

6.8%

GrubHub

USD

68.8

6426

6516

3.0

2.6

45.3

22.8

N/A

62.5

0.0%

0.0%

6.7%

11.3%

Just Eat Takeaway.com

EUR

86.3

12792

12884

3.7

2.8

N/A

74.1

N/A

N/A

0.0%

0.0%

-1.2%

3.8%

Eagle Eye Solutions

GBp

547.5

142

143

6.5

5.6

37.6

30.7

N/A

228.1

0.0%

0.0%

17.3%

18.2%

Delivery Hero

EUR

131.8

32703

32893

6.5

4.6

N/A

N/A

N/A

N/A

0.0%

0.0%

-9.3%

-1.4%

Average

4.3

3.6

N/A

32.8

38.0

14.5

0.9%

1.2%

13.4%

16.2%

Median

4.0

3.5

14.9

20.2

18.1

13.3

0.0%

0.0%

10.7%

12.1%

Source: Refinitiv. Note: Priced at 4 May.


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 2021 Edison Investment Research Limited (Edison).

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

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 — FY21 meets consensus as recovery continues

Ahead of results for the year to 31 March 2021 (FY21) due in June, a trading update for Appreciate Group (APP) indicates underlying results in line with market expectations, supported by the continuing positive trend in billings and despite an increase in profit deferral. In this note we provide an update on our forecasts and a detailed review of our fair valuation (60p per share), which looks through the near-term suppression of earnings by the pandemic and the cash flow effects of business mix changes.

Continue Reading

Subscribe to Edison

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

Sign up for free