Vectron Systems AG

Vectron Systems AG
Attraction of the equity story – We consider Vectron´s equity story as
attractive since it combines the growth prospect of a fast growing company
with the typical characteristics of a value investment (e.g. high dividend
yield).
The key attraction of Vectron´s equity story is the expansion of business activities
to new geographic markets, the untapped potentials within its existing markets as
well as company´s sound installation basis and the traditionally high dividend yield
(in the past pay-out ratio of approx. 80%). Although Vectrons´s existing markets
has saturated, the company will still generate higher revenues in the future in
course of the squeeze out of small regional operators and the diversified customer
focus. Moreover, given an installation basis of more than 100,000 systems, Vectron
intends to monetize on this hidden potential within its existing customer basis by
reducing the overall product life cycle by means of new innovations and valueadding
product improvements (e.g. Vectron ServiceCall).
Fiscal memory chip – The company´s equity story becomes even more
attractive by considering the tremendous growth prospects related to the
introduction of a mandatory fiscal memory chip (Fiskalspeicher) which shall
enables tamper-proof storage of cash turnover. Such a development represents
great chances for Vectron since the company has already collected corresponding
experiences in Turkey and in some Nordic countries. According to the relevant
market participants German authorities consider to introduce this kind of systems
by 2012. However at current stage, we did not account for such a scenario in our
valuation approach.
Risks related to the equity story – We see major risks related to Vectron´s
equity story in the ongoing recessive economic environment as well as from
deflating prices as a result of the competitive market environment. Vectron
operates in a cyclical business in which the company generates its revenues mainly
from the sale of POS systems that has non-recurring characteristics. However, in
the past Vectron successfully managed to evade from a margin diluting price
competition.
Financials – We expect Vectron to return to its past growth path by 2010E
and benefit from its current counter-cyclical strategy by expanding its
product portfolio and distribution network. Prior to the current ongoing
recession, Vectron achieved a top-line growth of CAGR 21.9% over the period
2005 to 2007. We expect this trend to slow-down to a CAGR of 12.3% until 2012E
as a consequence of the current recessive macroeconomic environment and the
slowing growth pace in its underlying market. After further challenging FY 2009E
with significant decline in the top line as well as bottom line, we expect Vectron to
yield the fruits of its counter-cyclical business expansion strategy from 2010E on.
We think that the current investment backlog as result of the ongoing recession will
start to ease from the beginning of FY 2010E and forecast revenues of EUR 23.2m
and EUR 25.8m for 2010E and 2011E, respectively.
Valuation: By combining a multiple valuation and a Discounted Cash Flow
(DCF) model we derived a fair value of EUR 20.71 per share. Although the
challenging market environment will last throughout the entire FY 2009E, we think
Vectron´s mid-term growth prospects are still intact. By considering the company´s
attractive business model and the promising growth rate from 2010E on, we think
that the current price level offers an attractive buying opportunity.
www.cbseydlerresearch.ag
Equity story: Growth
company with valueinvestment
characteristics
A possible introduction
of a mandatory fiscal
memory chip indicates
tremendous mid-term
growth
Deflating prices as
major risk
Despite gloomy short-
term growth prospects
mid-term perspective
are still promising
Our fair value amounts
to EUR 20.71
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