Cloud Transition And Ecosystem Opportunities Will Open New Markets

Key Takeaways

• Transition to Vista Cloud and ecosystem opportunities aim to enhance revenue streams, SaaS growth, and earnings predictability.
  
• Operational efficiency and innovation in AI and cinema solutions are boosting profitability and competitive edge.
  
• Challenges with cloud transition, currency fluctuations, and movie industry reliance could impede revenue growth, while high operational costs threaten margins and financial stability.

Catalysts

Provides software and data analytics solutions to the film industry.

• Vista Group's transition to Vista Cloud is gaining momentum, with 17 new clients and nearly 700 sites using Vista Cloud Solutions. This transition is expected to improve recurring revenue and expand their SaaS revenue, positively affecting revenue growth in the future.
  
• The company aims to achieve an ARR run rate of over $175 million by the end of 2025. Successful client transitions and increased adoption of Vista Cloud are likely to bolster revenue streams and improve earnings predictability.
  
• The focus on broader ecosystem opportunities, such as payment processing and advanced yield management, is expected to unlock new revenue streams. This could lead to higher gross margins as the company leverages its data-rich environment for actionable solutions.
  
• Operating leverage is being expanded, with improved EBITDA margins (15.5% excluding FX losses) and a guidance range of 16% to 18% for 2025. This focus on operational efficiency is likely to enhance net margins and drive profitability.
  
• Continued innovation and development of new features in Vista Cloud, including AI-driven tools and advanced cinema experience solutions, are expected to raise the company's competitive edge, enhance client satisfaction, and increase spend per admission, thereby boosting both top-line revenue and bottom-line performance.

Vista Group International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vista Group International's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.7% today to 11.6% in 3 years time.
• Analysts expect earnings to reach NZ$25.6 million (and earnings per share of NZ$0.11) by about May 2028, up from NZ$-1.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NZ$36.7 million in earnings, and the most bearish expecting NZ$17.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 48.0x on those 2028 earnings, up from -831.1x today. This future PE is greater than the current PE for the NZ Software industry at 15.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Vista Group International Future Earnings Per Share Growth

Risks

• The complexity and challenges associated with moving from on-premise solutions to cloud infrastructure may pose risks, particularly with large and complex clients, potentially delaying the achievement of recurring revenue targets. This could impact revenue growth and EBITDA margins.
  
• Fluctuations in foreign exchange rates may create financial uncertainty, particularly with revenues derived from international markets, affecting net revenue and overall earnings.
  
• The pressure to keep up with rapid cloud adoption and onboarding may necessitate increased operational expenditures and investments in resources, which could impact net margins and reduce free cash flow if not carefully managed.
  
• Dependency on box office performance as a significant driver of revenue presents risks if the movie industry experiences downturns, which could adversely affect gross transaction value and recurring revenue.
  
• Reliance on successful execution of digital and operational excellence solutions poses execution risks, where failure to meet customer expectations or delays in deployment could affect client satisfaction and ultimately impact net earnings and growth projections.

Valuation

• The analysts have a consensus price target of NZ$4.079 for Vista Group International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$4.8, and the most bearish reporting a price target of just NZ$3.4.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$219.6 million, earnings will come to NZ$25.6 million, and it would be trading on a PE ratio of 48.0x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of NZ$3.48, the analyst price target of NZ$4.08 is 14.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.