Vectron has had a turbulent first half as it works to diversify its business into digital services. Several management changes have seen the company return to founder control. To develop its digital marketing services, the company has chosen to use an existing loyalty platform via a partnership with DeutschlandCard, revised its relationship with Coca-Cola and entered into a pilot project with the digital arm of Metro. Regulation is likely to reinvigorate POS system sales in FY19 with longer term growth dependent on the successful uptake of digital services.
Vectron’s softer interim results were indicative of the absence of regulatory tailwinds for the period. Revenues declined 28% to €13.9m, while personnel and other operating costs grew 5% as the business continues to invest in digital services, resulting in an EBITDA loss of €0.9m. While FY18 is likely to see year-onyear revenue decline, the business is now preparing itself for the next wave of regulation for cash registers, which will become effective in 2020. We expect consensus forecasts to trend down for FY18 to reflect the lull in purchasing before sales start to recover in FY19.
The GetHappy partnership with Coca Cola has been rescinded, with a similar scheme being put in place with Germany’s second largest customer loyalty provider, DeutschlandCard (DC). Vectron will thus benefit from the established nature of DC and will also incur lower set-up costs as a result. Furthermore, Vectron has announced secondary deals with both Coca-Cola and Metro. We understand that Vectron will sell aggregated sales data to these entities, though we note that commercial details for these deals (including DC) are limited at this stage.
Despite the recent share price weakness, Vectron continues to trade at a premium to listed peers on a multiples basis. While this is indicative of lower levels of nearterm profitability, we maintain our view that the shares are pricing in successful execution of the shift to diversify revenue streams away from the sale of POS systems. The opportunity is significant, but consensus does not expect material contributions from these schemes until 2020e.