Vectron’s core point of sale (POS) business generated strong growth in revenues and earnings in FY16, and should continue to benefit from several growth drivers in the short to medium term. With adoption by 2-3% of its customer base, Vectron’s existing online marketing solution, bonVito, is close to breaking even. The recently announced partnership with Coca-Cola to support its GetHappy loyalty app has the potential to add high-margin recurring revenues from the end of FY17.
Focused on the hospitality market in German-speaking Europe, Vectron’s core POS business has shown strong growth in revenues and profitability over the last two years, helped by a combination of internal product development and changes in regulation relating to electronic cash registers. Vectron recently bought 75% of Posmatic, an mPOS provider that supplies its software on a subscription basis. The company’s online marketing platform, bonVito, provides participating merchants with loyalty and marketing services integrated with their Vectron tills. With 2,671 participating merchants and 5m cards in circulation, the company expects this service to break even soon.
In the core business, Vectron is benefiting from regulation against electronic cash register-related tax evasion that is driving software and hardware upgrades – this is likely to be a multi-year process. Growing demand for the Duratec system is driving incremental sales and should help Vectron’s international expansion plans. The partnership with Coca-Cola will see the bonVito platform being used to upgrade Coca-Cola’s GetHappy loyalty app, turning it into a comprehensive provider of online marketing services to the hospitality industry. Successful adoption of the new app (launch targeted for the end of FY17) should generate a high-margin recurring revenue stream for Vectron and could accelerate sales of its POS systems.
Valuation: Factoring in online marketing success On consensus forecasts (which mask a wide range of forecasts), Vectron is trading at a premium to traditional POS suppliers and more in line with online service providers to the hospitality market. Evidence of successful adoption of the new GetHappy app, which should start to contribute to earnings in FY18, will be key to upside to the stock.