Vectron saw a continuation of the weak demand environment for its point-of-sale (POS) solutions in H119, although revenues have improved every quarter since the trough in Q318 and management expects regulatory tailwinds to boost demand from Q4. More digital services partnerships were signed in H1 and the company launched a bundled POS system/digital services offering in June as part of its plan to shift to a digital business model and build a base of recurring revenues.
Revenues declined 13.5% y-o-y to €12.0m in H119, as demand for Vectron’s POS systems remained weak. We note, however, that H119 revenues were 9.7% higher than in H218. This resulted in an EBITDA loss of €1.0m, compared to a loss of €0.9m a year ago. The company noted that a third of employees are focused on the development of the new digital business model. Management expects the imminent application of new German cash register regulations to support an uptick in demand from Q4.
Last year the company decided it was too expensive to develop digital services such as loyalty, reservations and ordering from scratch. Instead, it is partnering with third-party providers, integrating their services with its POS systems. During H1, it signed up table reservation and food ordering providers and in June launched a bundled service that integrates them alongside the DeutschlandCard loyalty scheme with its Duratec POS system to provide a comprehensive service to customers. The company aims to reduce the dependence on one-off POS system sales and increase the level of recurring revenues from the provision of digital services to its customer base.
Consensus forecasts for FY19 have been reduced post-results to reflect the level of demand and profitability in H119. FY20 estimates are unchanged, we believe reflecting a step up in demand for POS systems as well as a growing contribution from digital services. On an FY20 basis, Vectron trades in line with POS system providers. We feel that evidence of a pick-up in demand for POS systems and/or evidence of increasing adoption of digital services should act as triggers for share price upside.