FY18 financial results were affected by a drop in demand for Vectron’s POS systems that started in H217. This reflects a pause in buying after merchants satisfied the cash register regulations that came into force in 2017, as seen in the strong revenues generated in FY16 and H117. The next phase of regulation is due to come into force in CY20; consequently management expects demand to pick up this year and next to satisfy these regulations. Consensus forecasts reflect this. Vectron raised €5m from the issue of 661k shares in February, returning the company to a net cash position.

Vectron is keen to reduce its dependency on hardware sales, which are unpredictable and one off in nature. Adding digital services to Vectron’s POS systems provides a route to recurring revenues and supports its POS users with their customer marketing and retention efforts. The collaboration with DeutschlandCard (DC) has been formalised and will enable DC holders to generate and redeem points in hospitality venues that use Vectron POS systems when launched later in Q219. This should widen the appeal of DC and generate more footfall for Vectron POS customers, while generating transaction revenues for Vectron. The pilot with Metro’s digital arm, Hospitality Digital, has been widened to test pricing and distribution models.

Consensus forecasts are for strong revenue growth in FY19 and FY20 with a return to profitability in FY19. We assume that analysts have factored in a regulatorydriven resumption in demand for POS systems starting in FY19. On this basis, Vectron’s valuation falls to attractive levels by FY20.