Description

Diebold (DBD) has been written up on VIC three times in the past five years, the last two were long recommendations. Both are well written and provide valuable background about the company and business (see links below). Thus in this report we forgo a lengthy discussion on the business and provide updated thoughts post the company's recent exit from Ch.11 

1) 4/2021: https://www.valueinvestorsclub.com/idea/DIEBOLD_NIXDORF_INC/8965276195

2) 10/2022 https://www.valueinvestorsclub.com/idea/Diebold_2024_Unsecured_Bonds/3380479856#messages

In mid-2023 Diebold went through a Ch11 reorganization primarily to purge an overly levered balance sheet that, combined with inconsistent results, led to an untenable situation. The company recently emerged as a post-reorg equity, with its operations intact but with far less debt. The company’s mission and operations are similar to its pre-Ch.11 structure, with more breathing room and with reasonably good business fundamentals.

Notwithstanding its recent run up into this report, I am recommending the stock as a long with upside of 30-60%. The stock has run from 19 to 28 in the past month and from 24 to 28 in the past two weeks. Waiting for a pullback might make most sense, even if the stock can move higher on good execution. The holder base is made up of CLO and distressed holders who owned the previous debt only to be equitized. These aren’t long term equity holders and many are likely to exit either via the shelf outstanding or as regular sellers into strength. 

Management believes the business can generate EBITDA of 450-500mm with meaningful free cash flow. We believe the business is stable and are constructive of the oligopoly-like industry structure. At 5.5x EBITDA of 475mm the equity would trade 66% higher, with a FCF yield of almost 20% on today’s equity price, with only 2.2x net leverage. If the company can execute to plan they will be able to rapidly delever by using free cash flow to pay down debt. 

To be fair, the last couple of years results have been uneven, and free cash flow has been volatile. The company’s recent post re-org emergence has given the company breathing room to execute on its plan and we expect better, more consistent results going forward. The relatively stable operating environment coupled with its modest leverage provide the company a good set up to meet or exceed targets. We view NCR’s October spin-off as beneficial development because it provides a pure play comp that trades at an unwarranted 1-2x premium, while acknowledging DBD for the coming quarters remains a show me story.     

Description

Diebold offers a broad portfolio of solutions designed to automate, digitize and transform the way people bank and shop. As a result, the Company’s operating structure is focused on its two customer segments — Banking and Retail. Leveraging a broad portfolio of solutions, the Company offers customers the flexibility to purchase the combination of services and products embedded with software that drive the most value to their businesses.

Historical Results 

Management Forecast

Risks 

Poor execution by management 

Lack of interest by buy and sell side commnunity

Decline in ATM Business as cash is demphasized 

Inability to generate free cash flow due to competitive environment 

Disclaimer

This report represents my personal views only at the time of submission, my views can and will change and I may not communicate those changes in a timely way or ever. You should do your own work and not rely on this submission to make any investment decisions. This submission or past or future comments are not financial advice. 

Catalyst

Addtional Sell Side Coverage

Execute on Plan

Delever

Time ( Build post re-org operating history)