June 15, 2017 - 7:03pm EST by
2017 2018
Price: 39.25 EPS 3.40 3.80
Shares Out. (in M): 157 P/E 11.5 10.4
Market Cap (in $M): 6,166 P/FCF 11.5 10.4
Net Debt (in $M): 2,927 EBIT 915 1,000
TEV (in $M): 9,093 TEV/EBIT 9.8 9.1

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  • Misunderstood Business Model
  • Transformation
  • Overhang of Shares


NCR is evolving from a hardware to a software driven company which will help drive higher margins and growth over the next several years.  We believe it is misunderstood and overlooked and its valuation does not reflect the transformation so far.  Trading at just 10-11X Free Cash Flow, NCR believe the company can re-rate as it continue to executes on its strategy.  NCR believe shares can trade from $39.25 to $50+/share over the next twelve months. 

General Description

NCR was last on VIC as a short back in 2014.  The short thesis is understandable.  Questionable accounting, secular headwinds, bad capital allocation, poor management decisions etc.  Some of these things are still present today, the stock has barely moved up during the past few years.  However today, we believe that the company is showing signs of its execution but its valuation still reflects all the negative past.

Why Invest Now?

NCR believe that the stock is undervalued and still suffers from the negative sentiment from over the past few years.  Furthermore, NCR believe that the stock is also temporarily depressed over an overhang of stock that Blackstone owns and will most likely be selling over the cNCRse of the next year.  In December 2015, NCR sold a convertible preferred to Blackstone after a strategic review of the company.  It was announced earlier this year the Blackstone would sell 49% of its holdings.  NCR believe the combination of these two factors are causing the stock to be depressed, hoNCRver these factors could very easily be corrected over the next 12 months.

Company Description

NCR Corporation (NYSE:NCR) is a leader in omni-channel solutions, turning everyday interactions with businesses into exceptional experiences. With its software, hardware, and portfolio of services, NCR enables nearly 700 million transactions daily across retail, financial, travel, hospitality, telecom and technology, and small business. NCR solutions run the everyday transactions.  For example, NCR sells self-service and assisted-service solutions, serving customers globally in the financial services, retail, hospitality, travel and telecommunications and technology industries. This includes software and hardware solutions for ATMs and bank branches, retail and hospitality point-of-sale applications and devices, and selfservice kiosks and software applications. The Company complements its product solutions by offering a complete portfolio of services to support both NCR and third-party platforms. It also resells third-party networking products and provides related service offerings in the telecommunications and technology sectors.

Product Segments


Software  6-8% Growth
The software offerings include industry-based software platforms such as self-service ATM software application  for financial services,  Retail ONE and Aloha Enterprise software application suites for the retail and hospitality industries, and NCR Silver, a cloud-based POS system for small businesses. Also NCR provides a portfolio of other industry-oriented software applications, which include cash management software, video banking software, fraud and loss prevention applications, check and document imaging, remote-deposit capture, and customer-facing digital banking applications, such as NCRb-enablement and bill payment (including mobile bill payment), for the financial services industry; and secure electronic and mobile payment solutions, sector-specific point of sale software applications for quick-service restaurants, gas stations and other businesses, and back-office inventory and store and restaurant management applications, for the retail and hospitality industries.   NCR software platforms and applications, which are delivered on software as a service (SaaS), enterprise license and other bases, are designed to work with hardware products, or as stand-alone solutions. NCR software solutions deliver a consistent and rich consumer experience across channels, while enabling businesses to digitize and automate labor-intensive processes, reduce costs and increase productivity.
Services   1-3% Growth
Services are an essential and integrated component of NCR’s complete solution offerings to help companies increase availability and security of consumer touchpoints, improve operational efficiency and enhance the customer experience. NCR provide global end-to-end services from assessment and preparation, to staging, installation and implementation, and maintenance and support. NCR also provide systems management and complete managed services for NCR product offerings. NCR also provide Predictive Services, a managed services offering, which is designed to predict and address information technology issues quickly before they happen. In addition, NCR provide installation, maintenance and managed services for third party networking products to a broad base of customers in the telecommunications and technology sectors, and NCR services third party computer hardware from select manufacturers who value and leverage NCR global service capability.


Hardware Products  5-8% Growth


NCR provides financial institutions, retailers and independent deployers with a suite of financial-oriented self-service hardware products. NCR financial services hardware products include multi-function ATMs, interactive teller machines (ITMs), thin-client ATMs, cash dispensers, cash recycling ATMs and hardware for check and image processing. NCR financial services hardware products are designed to quickly, reliably and securely process consumer banking transactions while providing low cost of ownership, efficiency and a modernized consumer experience. NCR also provide retail- and hospitality-oriented hardware products such as point of sale terminals, self-checkout kiosks, order and payment kiosks, bar code scanners, printers and peripherals, to retailers, restaurants, food service companies and entertainment and sports venues worldwide. NCR retail and hospitality hardware products are designed to improve operational efficiency, increase customer satisfaction, streamline order and transaction processing and reduce operating costs. NCR also provide other self-service kiosks, such as self-check in/out kiosk solutions for airlines, hotels and casinos that allow guests to check in/out without assistance, wayfinding solutions (locating products or navigating through large, complex buildings and campuses), digital signage, bill payment kiosks and gift registries. These solutions create pleasant and convenient experiences for consumers and enable NCR customers to reduce costs. In addition, NCR resells third party networking products to a broad base of customers in the telecommunications and technology sectors.





Earnings Model

Revenue 2017 2018
Hardware 2400 2450
Software 1955 2080
Services 2350 2425
   Total Revenue 6705 6955
Cost of Revenue 4650 4750
Gross Profit 2055 2205
S G & A 900 930
R & D 240 250
Total Opex 1140 1180
Total Op Income 915 1000
Interest 165 165
Other 25 25
Total Pre Tax 725 810
Tax 192 215
Net Income 533 595
EPS 3.40 3.80
D & A 210 215
Stock Based Comp 70 70
EBITDA 1190 1280
Capex 275 280
Free Cash Flow 533 595


The driver of earnings for NCR over the next several years will be in software.  That segment is the fastest growing and carries a margin 2X+ over services and hardware at over 50% operating margin. 



Valuing NCR is not totally straightforward which is a major reason for its mispricing.  It is typically known as a hardware company who undergoes cycles driven by financial services capital spending, retail spending and a headwind of less cash usage.  HoNCRver, the company has been successfully pivoting away from being solely dependent on these factors.  NCR believe that NCR is a hybrid of a hardware company and a software and services company.  At the low end, NCR believe the stock should trade at 7x EBITDA and 8X earnings (Hardware type multiple), and 10X EBITDA and 15X earnings (software multiple).  

Comps are Verifone, PAY; First Data, FDC, Diebold and Nixdorf (DBD)

NCR believe that NCR should trade at 9X EBITDA or about 14X earnings.  This translates into $54/share.  or 37% higher.


NCR is the second largest player in ATMs behind Diebold and Nixdorf.  It also competes against other technology providers depending on product and end market such as HP, Fujitsu, Honeywell, Fidelity National Information Systems and Nautilus Hyosong.


Competition from Diebold Nixdorf

Blackstone selling pressuring stock price

Failure to execute on software and cloud growth initiatives



I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Continued Execution of growing software and cloud revenue

Elimination of Blackstone overhang this year

Stock Repurchases

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