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NCR Corp. (NCR - Analyst Report) has gone back to acquisitions in order to tighten its grip on the Brazilian market. The company recently announced a series of strategic acquisitions that would further increase its penetration within the fast growing hospitality industry.
NCR acquired three companies in the region that would help it cater to different segments of the hospitality industry. The first is a provider of POS Integrated Solutions that also resells NCR Aloha solutions for restaurants. The second was Wyse Sistemas de Informática Ltd., which provides market-leading software solutions, including the Colibri suite of hospitality software. The third was Radiant Distribution Solutions (RDS), an NCR Hospitality hardware distribution partner.
NCR Corp. did not disclose the terms of the deal, but took the decision to acquire these companies after analyzing in detail the business potential associated with each acquisition. According to Euromonitor, restaurant spending in Brazil is expected to grow 9-10% annually.
The expansion of the hospitality business is an extension of the expansion activity of NCR’s hospitality business in Brazil, which follows the company’s alliance with Scopus Technologia Ltda last year. Under the partnership agreement, 30,000 ATMs will be set up over five years from NCR’s manufacturing plant in Manaus. In April 2011, the company reported its plans to expand its retail business in Brazil.
As healthcare represents a large market opportunity for NCR. The company previously entered the Brazilian market with the acquisition of Galvanon, Inc., a privately-held company and leading provider of self-service solutions. The acquisition also helped NCR to secure numerous customers for MediKiosk, a patient check-in solution provided by Galvanon.
On the other hand, NCR’s sales are affected to a certain extent by seasonality, with the first quarter bringing lower revenue and the fourth quarter generating higher revenue each year. Such seasonal nature of the business leads to fluctuation in cash flows and makes it difficult for the company to predict its working capital requirements accurately, thereby resulting in inaccurate cash projection.
NCR reported decent first quarter results with revenues improving across most of its business segments and geographical regions while EPS matched our expectation. We are encouraged by the fiscal year guidance and believe that the company is well positioned to deliver solid momentum across all its businesses.
The company has improved its operating performance and is managing its expenses well. Although the restructuring initiatives have started impacting results, we believe that the company should reduce its debt balance to further improve its operating performance, and must come up with new strategies to compete against Diebold Inc. (DBD - Snapshot Report).
The company has a short term Zacks #2 Rank, implying a Buy rating.