On a relative basis, we believe that the coronavirus will have a rather negligible impact on Vitec, and that the nature of Vitec’s products and business model makes the company better protected than most.
Vitec currently enjoys ~80% recurring revenues. Its software offerings are ‘need-to-have’ products for its customers, and they are mainly delivered through a digital and cloud-based model. The potential coronavirus effect, in our view, comes in the form of potentially lower service revenues and activated work. Despite Vitec’s strategic focus on prioritising recurring revenues, service revenues still comprise approximately ~10% of net sales, which could face headwinds from the coronavirus. Additionally, activated work, which arises from Vitec spending approximately ~10% of sales on development of its software, could be negatively affected by its software developers working from home. In terms of the acquisition rate, we believe that Vitec has a solid and well-developed pipeline which should not be affected, as the situation currently stands.
Link to research:
https://www.introduce.se/foretag/vitec/Equity-research/2020/3/vitec---recurring-revenues-need-to-have-software/
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