Perfectly positioned to perform
Pricer’s (ST:PRICb) 9M15 results showed the group pulling decisively out of the earnings slump of the last two years, with revenues up 69% and operating profit rebounding from SEK8.7m in 9M14 to SEK40.4m. We are bullish on the ESL market as implementation ROIs for retailers have increased dramatically in recent years. This follows improvements in label quality and the addition of value-added benefits in operational efficiency, pricing and other analytics and customer interaction. Research house ABI forecasts the market to grow sixfold to $2bn in the five years to 2019 and, as one of the two global leaders in the sector, we expect Pricer to participate fully.
Revenue and operating leverage driving profit growth
Pricer reported a 69% y-o-y increase in revenues over 9M15 largely due to major projects with increased sales of higher-priced ePaper labels. Slowing the gross margin decline to 2.5pp helped gross profit to rise 51% y-o-y and operating profit to increase 364% y-o-y to SEK 40.4m. Order inflows for the period reached SEK799m, but lumpy project completions led to a reduction in order backlog from SEK300m to SEK130m in Q3. We expect order inflows to pick up again in H116 and to drive revenues higher. Very positively, management has signalled a likely improvement in gross margins in 2016 which, given the operating leverage of the business, should lead to further strong growth in operating and net earnings.
New products are boosting sector demand
As mentioned above, we expect the new generation of ePaper graphic and NFC-enabled ESLs, together with new value-added software and hardware features, to continue to increase demand for ESL systems across the retail spectrum and into major undeveloped markets outside Europe (see our SESL note of 17 November 2015). Pricer has launched a promising new SmartTAG flashing-light ESL with added benefits in highlighting out-of-stock situations at the shelf and guiding customers and stock pickers to the correct shelf, with the latter generating efficiency gains for the retailer.
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