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NCR Corp.: Value Amid The Rubble

Mar. 06, 2020 11:35 PM ETNCR Corporation (NCR)7 Comments
Value Ninja profile picture
Value Ninja


  • New management team with credible track record of value creation.
  • Business model transition underway to create a higher-quality, more stable business longer term.
  • Compelling value after the sell-off, with plenty of routes to upside.

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NCR Corp. (NYSE:NCR) is an attractively valued business undergoing a significant change with new management at the helm. The company will emerge from the current transition as a much better quality business with higher margins and more recurring revenues. Current valuations woefully undervalue this potential.

Market Sell-Off

The recent sell-off in equities has been brutal. The market seems to be trying to price in some kind of Zombie Apocalypse and has without doubt created many investment opportunities for long-term investors. This applies to all investment styles, be it "Growth" or "Value".

I have been following NCR for a few months, and the stock has suffered greatly in the Coronavirus sell-off, falling from $35 to $25 in the blink of an eye…

The company is very much a "value" stock, and immediately this means one needs to tread with caution given how much disdain there has been in the market for such equities. But there is in fact a lot to like and much that suggests NCR is a mispriced security, and then some.

Company Background

NCR's business is in the selling of hardware and software services to Banking, Retail and Hospitality customers worldwide. More specifically, it sells ATM machines to banks, self-checkout ("SCO") and point-of-sale ("POS") machines to retailers and hospitality companies, and associated

This article was written by

Value Ninja profile picture
An investment manager with over 20 years experience in equity investment, primarily focused on US equities. Investment approach is based on rigorous bottom-up analysis designed to identify mispriced securities with potential for significant long-term upside. Investment style is agnostic, with a preference for finding opportunities in both value and growth stocks.

Analyst’s Disclosure: I am/we are long NCR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (7)

Technology Assessment Group profile picture
NCR must compete with vendors, many (but not all) of which base their product on software on top of commodity PC hardware. So it is tough to compete with commodity hardware. There are no secrets around making software to process ATM, Self Checkout, or POS transactions. Maybe they were innovative and new in 1884 when Patterson founded NCR. The last "Branch of the Future" initiative I know of was in 1984 with the BAS 5000 which initially flopped, so this is a recycled old program; it does reflect the legacy of NCR Financial Systems Division, for which I started my career. But many of the specialty products of the that division have gone the way of the dodo bird. There are no longer large proof centers requiring hundreds of machines, and little need for Read/Sorters. The proprietary teller machines are no longer needed, since the banks use commodity displays driven driven by commodity PC servers rather than proprietary controllers. Both number of ATMs and teller windows per branch are declining. The article did not identify any any new initiatives to win in this environment, other than new management from the Financial Services industry, which is good step in the right direction. But while the products NCR makes are good and useful, the unit growth rates are not there. The action in Banks has been in in-memory DB for analytics, but that is not a strong point of NCR.
lorddarley profile picture
When I owned it in Nuti days, he made it to the cover of Barron's. There was a great hope for overseas expansion, and proprietary "teller in a box" for small US banks as a means to cut out expensive branches.

Mobile banking has just changed the rules for banking everywhere. The only real need ATMs fill anymore is cash deposit and withdrawal. If you want a mortgage, go online, not to a live teller transmitting signal through an ATM.

Many years ago (but after the 2008 crash idf my memory is right), NCR "derisked" its pension plans by selling all stocks, and missed the greatest bull market in history. I think those plans are still a drain for the legacy workforce.
lorddarley profile picture
This is a good article, but I don't see much difference in NCR since Bill Nuti was saying the same stuff. Migrate from hardware to software.

Concept is good, but this is just a lousy industry where you can't make money. Banks are terrible customers and reluctant to spend; mobile apps have made the NCR teller in a box concept obsolete; hospitality has too many competitors; and there are still legacy labor issues.

There are better industries to invest in. NCR is just in a bad neighborhood.
Value Ninja profile picture
Certainly don't disagree with there being better industries to invest in. But nonetheless, I think NCR is very interesting as there is little priced in for any success - perhaps quite rightly so, though I think this management team have more of a chance than previous incarnations.
This article shows very little understanding of NCR’s continual dependence on hardware revenue and it’s yearly fluctuations. Also the significant impact currency has year over year on the business. The fact that the retail and financial business have no synergy and how linked they are to hardware sales. The only reason the stock is interesting much like Diebold is that they have both been punished in the sell off beyond the market retreat. Buying small software companies does not help when hardware cycles and currency cycles wipe out any upside from these purchases. Digital insight and retalix are classic examples of wasting the balance sheet and getting no value in the stock price.
Value Ninja profile picture
thanks for your feedback, Michael.

I agree with your statement to some extent IF the new management team can't change the mix and model. But that is the point.

But addressing your points:
1) indeed they depend on hardware revenues, but they are shifting the mix very gradually towards software and services. Some of that software and service revenue is not attached to hardware - you can see this on their former segment reporting. Management are planning to (and have already started) increasing this unattached revenue in the mix.
2) currency is impactful to pretty much all technology companies. not sure I understand your point.
3) There is synergy in shared technology across retail and financial businesses. But let's say there is zero synergy, then that leaves the option open for selling or spinning of a business, opening up an alternative route for value creation.
4) I disagree that the benefit of small bolt-on software acquisitions will get eaten away by hardware cycles and currency. It all comes down to how well their capital is allocated and the choice of target companies. This in turn boils down to management capability - and I believe this new team are much, much more astute than before. But yes, of course, this is a risk.

Whether or not your agree with my points, your statement about the value of NCR in the sell-off is exactly my point. You get a cheap company with an already attractive FCF yield, even if my thesis doesn't play out in full.
As an ex NCR VP, NCR had a strategy of leveraging off their hardware sales to increase software and professional services profit.

They seem to be trying todo the same again and expecting the same results.

The markets and customers have moved and seemingly left NCR behind.

Another turnaround plan!!!!
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