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Ask the Investor: “What happened to Diebold Nixdorf’s stock price?”

By: Ryan T. Fulmer
Thursday, February 7, 2019

Some investors might argue that Diebold Nixdorf’s management has been asleep at the wheel ever since rejecting United Technologies’ acquisition offer at $40 per share (or an enterprise value of $3 billion) in March 2008.

It gets worse.  Over the last two years, Diebold Nixdorf’s (DBD) stock price has declined about 84%, around just $4 per share, compared to the S&P 500’s almost 15% rise. A dramatic return difference.

Shareholders have lots of questions, but are getting few answers. The share price decline can’t be attributed to a single factor, as underlying business fundamentals have been very challenging and new growth investments have not panned out.

As a quick refresher, Diebold Nixdorf’s business revolves around two reporting segments: banking and retail. Diebold Nixdorf has over 1MM installed ATMs with the largest market share globally and a client list including the top 100 financial institutions.

One of the largest threats to Diebold Nixdorf has been a change in preferences from cash toward electronic payments (or debit/credit cards) and mobile payment providers such as Venmo. These challenging headwinds have negatively impacted Diebold Nixdorf’s growth rate and profitability.

The acquisition rationale of Wincor Nixdorf was to add services and software to their core ATM business, enhancing profitability and growth. In a 2017 investor presentation, Diebold Nixdorf anticipated that their recurring revenue would increase 2.5x by 2020, to about 50% of total sales, and software and services would constitute 65% of their revenue by 2020.

Unfortunately, the slim operating margin of about 5%, significant net debt (cash minus debt), of $1 billion, and 2.7x leverage was too great for this secularly challenged company.

In December 2018, Diebold Nixdorf reported that their free cash flow (or operating cash flow minus capital expenditures) was -$200 million. As investors and debt holders became increasingly worried about the reduced profitability of Diebold Nixdorf, the stock price continued to decline.

Management looks to aggressively improve their cash flow through divestures and some restructuring, but it is doubtful that these changes can off-set the secularly challenged fundamental trends.

As of September 2018, the company reported a net debt of $1.9 billion and a leverage ratio of around 6.1x, which simply means that they have 16% equity in the company. A small amount, even for highly-leveraged private equity owned companies.

So, what’s next for Diebold Nixdorf?

Many of the usual suspects such as activists hedge funds or private equity firms will likely be uninterested in Diebold Nixdorf due to their significant amount of debt. If management is able to quickly turn the ship around, it may still be a long turnaround time to outgrow their heavy debt burden.

Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.


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