Record Date: 10/2; Distribution Date: 10/16
On September 22, 2023, NCR
NCR
Valuation
We value NCR Corporation (NCR) using the 2024e EV/EBITDA methodology by valuing NCR Voyix (Stub) and NCR Atleos (Spin-Off) separately. Our intrinsic value of $21.00 for NCR (Stub) is based on a 2024e EV/EBITDA multiple of 9.0x (Previously: 9.2x) for the digital commerce business (~5% discount to its peer multiple of 9.4x). Our fair value estimate for NCR Atleos (Spin-Off) stands at $20.00 per share based on the 2024e EV/EBITDA multiple of 5.1x to ATM business (~9% discount to a multiple of Euronet). We arrive at a consolidated target price of $31.00 per share (Previously: $35.00) for NCR Corporation, which implies a potential upside of 16.6% from the current market price of $26.58 as of 9/26. We, thereby, retain our ‘Buy’ rating on the stock. Risks to our valuation include a slowdown in sales growth due to rising competition, weakness in the economy, slower momentum in key markets, and failure to achieve the cost-saving targets.
Regular-way and When-issued trading
The Company expects “when-issued” trading for NCR Atleos ordinary shares on the NYSE to begin on or about 10/11 and continue through the distribution date under the symbol “NATL WI.” Beginning on 10/11 till the distribution date, NCR expects that there will be two ways to trade its ordinary shares, either with or without the right to a distribution of NCR Atleos ordinary shares. NCR shareholders who sell their common shares in the “regular-way” market on the NYSE under the current ticker symbol “NCR” after the record date and on or before the distribution date will retain their right to receive NCR Atleos common stock shares in connection with the spin-off. Alternatively, NCR shareholders who sell their NCR common shares in the “ex-distribution” market during the same period under the symbol “VYX WI” will be selling their right to receive shares of NCR Atleos common stock in connection with the spin-off. The ‘regular-way’ trading of NCR Atleos is expected to begin on the NYSE on 10/17, the first trading day following the distribution date. Moreover, following the distribution date, NCR Corp will change its name to NCR Voyix and trade under the ticker symbol “VYX.”
NCR shareholders will receive one ordinary share of NCR Atleos for every two ordinary shares of NCR of the record date. The distribution of NCR Atleos shares will be made in the book entry form, and no physical share certificates of NCR Atleos will be issued. NCR shareholders are not required to take any action to receive the NCR Atleos stock. The Company will not issue fractional shares of NCR Atleos common stock to NCR stockholders. Instead, a cash payment will be made in lieu of fractional shares.
Other Update
On 9/22, NCR Corporation announced NCR Atleos priced an offering of $1,350 million aggregate principal amount of 9.500% senior secured notes due 2029 at a price of 98.750% of the principal amount of the notes. The aggregate principal amount of the notes to be issued in the offering was increased to $1,350 million from the previously announced $1,050 million. The maturity of the notes was shortened to 5.5 years from the previously announced 7-year maturity. The Notes are being offered in connection with NCR’s previously announced plan to separate into two independent companies. Upon consummation of the Spin-Off, the notes and related guarantees will be secured, subject to permitted liens and certain other exceptions, by first-priority liens on all of NCR Atleos’s and the Guarantors’ assets securing NCR Atleos’s new senior secured credit facilities. The offering was expected to close on September 27, 2023, subject to customary closing conditions.
Valuation
We value NCR Corporation by sum-of-the-parts valuation by assessing NCR Voyix (Stub) and NCR Atleos (Spin-Off) separately using the EV/EBITDA valuation methodology.
A] NCR Voyix (Stub):
EV/EBITDA Valuation: Post-spin-off, NCR Voyix (Stub) will focus on digital commerce business, continuing to operate its Retail, Hospitality, and Digital Banking businesses. We assign a 2024e EV/ EBITDA multiple of 9.0x (Previously: 9.2x) to NCR’s digital commerce business. The ~5% discount to its peer multiple of 9.4x (Previously: 9.6x) factors in NCR’s relatively slower top-line growth and higher debt level. We have estimated FY24e adjusted EBITDA of $705 million, with Net Debt of $2.7 billion (including unfunded pension liabilities). We have also considered a conglomerate discount of 20%. Consequently, we arrive at an intrinsic value of $21.00 (Previously: $24.00) for NCR Voyix (Stub).
During the investor day held on 9/5, the Company introduced FY27 financial targets. NCR Voyix expects total revenue growth at a 4%-6% CAGR during FY23-FY27. Notably, the Company aims for recurring revenue of 65% with 9%-11% CAGR during FY23-FY27. The Company anticipates an Adj. EBITDA growth at a 10%-12% CAGR during FY23-FY27 with Adj. EBITDA margin expansion of 400 – 500 bps to 21%-22%, and free cash flow conversion rate of 40%-45% in FY27.
B] NCR Atleos (Spin-Off):
EV/EBITDA Valuation: Post-spin-off, NCR Atleos (Spin-Off) will include the ATM business and continue shifting to a highly recurring revenue model to drive stable cash flow and shareholder capital returns. Our fair value estimate for NCR Atleos (Spin-Off) stands at $20.00 per share (Previously: $22.00) ($10.00 per NCR share) based on the 2024e EV/EBITDA multiple of 5.1x to ATM business (~9% discount to multiple of Euronet). Including unfunded pension liabilities, we have assumed a Net Debt of $2.7 billion.
For FY23, NCR Atleos expects revenue of ~$4.4 billion, Adj. EBITDA of ~$0.8 billion with Adj. EBITDA margin of 18%. Moreover, During the investor day held on 9/5, the Company also announced FY27 financial targets. In FY27, NCR Atleos expects a total revenue of ~$5.5 billion (at a 6% CAGR during FY23-FY27). Notably, the Company aims to increase the recurring revenue profile to 80% with 11% CAGR during FY23 FY27. NCR Atleos anticipates an Adj. EBITDA of ~$1.4 billion (at a 15% CAGR during FY23- FY27) with Adj. EBITDA margin of 25% and free cash flow of $0.5 billion with 30% FCF conversion.
C] Consolidated Valuation: We arrive at a consolidated target price of $31.00 per share (Previously: $35.00) for NCR Corporation, which implies a potential upside of 16.6% from the current market price of $26.58 as of 9/26. We, thereby, retain our ‘Buy’ rating on the stock.
Company Description
NCR Corporation (Parent)
NCR Corporation (NYSE: NCR) is a leader in transforming, connecting, and running technology platforms for self-directed banking, stores, and restaurants. Headquartered in Atlanta with 35,000 employees globally, NCR operates through five segments: Payments & Network, Digital Banking, SelfService Banking, Retail, and Hospitality. The Payments & Network segment offers credit unions, banks, digital banks, fintech, stored-value debit card issuers, and other consumer financial services providers access to its retail-based automated teller machines (ATM) network. Digital Banking solution helps financial institutions implement their digital platform for various transactions. Its Self-Service Banking segment offers a line of ATM hardware and software, related installation, maintenance, and managed professional services. The Retail segment offers software-defined solutions to customers in the retail industry. The hospitality segment offers technology solutions, such as table-service, quick-service, and fast-casual restaurants of all sizes to the hospitality sector. The Company reported a total revenue of $7.8 billion in FY22. Post-spin-off, NCR (RemainCo) will be named NCR Voyix and will focus on digital commerce business, continuing to operate its Retail, Hospitality, and Digital Banking businesses. NCR Voyix is expected to be a growth business positioned to leverage NCR’s software-led model to continue transforming, connecting, and running global retail, hospitality, and digital banking businesses.
NCR Atleos (Spin-Off)
The NCR Atleos (Spin-off) will be a cash-generative business positioned to deliver ATM as a Service to a large, installed customer base across banks and retailers. The Company’s major ATM network customers include Capital One
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