WEEKLY STOCK COMMENT: VISTA GROUP
Roy Davidson, 28 November 2018
Vista Group (VGL) is a global market leader in cinema software. Established in 1996, VGL has grown to now operate in 90 countries with one quarter of all screens globally running VGL’s products. VGL’s software spans the cinema value chain, from production right through to screening.
VGL’s largest operating segment is Vista Cinema. This business provides a range of enterprise resource planning (ERP) software to large and small cinemas. VGL’s software runs core cinema operations including scheduling, ticketing, websites, food and beverage, and loyalty programmes. Movio, VGL’s second largest business, is a targeted marketing platform used by both cinemas and film distributors and studios. In addition, VGL has a number of smaller businesses such as MACCS which distributes films, Powster which runs films’ websites, and Flicks, an Australian and New Zealand ticketing and film review website. VGL also has a number of early stage investments which are currently loss making.
VGL has established itself as the clear market leader for cinema ERP software with around one quarter of screens globally running VGL’s software. VGL’s customers include 38% of large cinema chains and 2% of smaller independent operators. VGL’s success has been most pronounced in developed English speaking counties (e.g. North America where it has 45% share) but has shown the ability to expand into non-English speaking countries and now operates in more than 90 countries. For its core cinema product, VGL earns revenue from upfront license fees and recurring revenue in the form of maintenance fees (software updates etc.).
While cinema is a reasonably mature market in developed countries, the global market is growing at 6% a year driven by a growing middle class in emerging economies and increasing cinema penetration. We expect VGL to grow above this rate driven by 1) its superior product which should drive share gains via new customer wins, 2) VGL’s key large multiplex customers are growing at around double market rates, 3) increased cinema complexity and higher customer demands increasingly necessitates a ERP software solution, 4) VGL’s exposure to China which is growing rapidly and currently has 12% share, 5) improved margins by moving certain products to the cloud and as early stage investments move to profitability.
VGL provides investors with a global technology exposure with market leading positions, an excellent track record, and which is profitable. VGL is not cheap, however, the company deserves to trade on a higher multiple due to its track record and multitude of growth options it has ahead of it.
Risks to VGL include:
- economic downturn
- reduced cinema attendance
- increased competition