Micros Systems – Here For The Long Haul

Working in the application-software industry, Micros Systems (MCRS) provides payment platforms, inventory management and information systems to restaurants, hotels and stores and sells them as point-of-sale (POS) hardware and software. A small tech stock with good growth prospects, solid financials and a sound technology, this is a good investment opportunity for a long-term horizon.

The POS Industry
The POS industry revolves around small- and medium-sized software developers and large hardware manufacturers. A local retailer may deal with a two-person or a 10-person value-added reseller who works to find a correct POS solution for his business; it is a $10 billion dollar industry where value is added at every stage. In the hardware space, what looks like a simple device for swiping cards basically comprises of a host of other things such as pole displays, keyboards, cash registers, bar code scanners and receipt printers.

In the software space, besides sales transactions, a functional POS system includes inventory control, customer data and ability to provide reports. In many cases industries require customized software to suit specific needs.

Micros Is Adding Shareholder Value
For its second quarter 2013 fiscal, ended Dec. 31, 2012, the company reported a net income of $44.1 million, up 15% from the same quarter prior year. The management lost no time to announce that it was doubling its 2-million share repurchase program. This sort of proactive stance in returning value to shareholders goes a long way to make the company attractive to investors.

Growth Potential
Despite modest fourth quarter results, MCRS is expected to grow at a rate of 18.51% for the next five years. Against the current EPS of $2.18, analysts forecast an EPS of $2.32 for 2014 and $2.55 for 2015.

A regular supplier of valuable solutions to Apple, Micros Systems was recently selected by Sonic (SONC), a company that has nearly 4,000 self-owned and franchised drive-in restaurants, as its preferred provider of advanced technology solutions for enhancing its operations. Besides POS and back office solutions in all its drive-in facilities, Micros will be providing software for improving supply chain management, restaurant transactions and e-learning solutions for employee training.

Micros Has No Debt And Strong Financials
It is a company with no long term debt on its balance sheet. Short term current debt is only $1.76 million and current liabilities stand at $177.24 million. Against this, the company had cash and cash equivalents worth $486.02 million, short term investments of $148.05 million and net receivables and other current assets of $300 million.

It is not only the balance sheet but also the operating cash flow of $203.52 million that makes Micros a deserving candidate for investors to look at.

For the most current quarter ended June 30, 2013, Micros Systems reported revenue of $328.6 million, which was not only in line with analyst estimates but also $26.1 million or 8.6% more than the same quarter prior year. This was primarily due to strong overseas demand, particularly from Latin American countries and the Asia Pacific region. While there was a marginal drop in revenue from US/Canada, revenue from international operations increased 31%, from $589.85 million to $772.08 million.

At $42 million, GAAP income for the quarter declined by 12.9% over the same quarter 2012. There was a negative impact of 2% on gross margin and operating margin declined by 6.9% to 16.5%, primarily due to 25.9% increase in operating expenses including R&D and selling, general and administrative expenses. However, revenue for the fiscal year ended June 30, 2013 was $1.27 billion, an increase of 14.5% over FY 2012. GAAP income for the year was 2.7% more at $171.4 million.

Competition
It is not as if Micros does not have challenges going forward. The foremost is competition. Its major competitor is NCR Corporation (NCR), which caters to the same industries –hospitality, gaming and entertainment industries. NCR reported net income of $86 million on $1.54 billion revenue for the quarter ended June 30, 2013. While EPS of $0.84 is pretty dismal, the company is forecast to grow at more than 10% every year for the next three years.

Open Table (OPEN) is another company that could prove to be a major competitor in coming years. It provides online networks connecting reservation-taking restaurants, and is a recent entrant in the stock market. With revenue of $45.57 million, it reported net income at $8.32 million. Currently valued at $1.71 billion, it is estimated to grow at CAGR of 18.51% for the next five years.

Headwinds
The immense popularity of smartphones and other mobile devices has brought about a paradigm shift in the way software and computer-based services including POS solutions are used these days. In a fast moving technology industry there is an outside chance that some old players may be left behind. Despite being a solution provider to Apple’s iPad, Micros has to cope with competition from POS solution providers such as Square and Revel.

In addition, the economic environment in countries, including Europe and Latin America, where it has a significant exposure, is also a matter of concern and may prove to be a difficult hurdle to cross.

Summary
A continuing buyback program is a sure sign of faith that the management has in the company. With strong financials and potential for steady growth, Micros Systems is here for the long haul.