I don't think I've seen this before. IDX is mentioned....
ATM Maker Offers Safer Choice -- Diebold is undervalued because of the uncertainty about acceptance of new ATM services
Getting tired of technology stocks blowing holes in your portfolio? Diebold Inc. (DBD-NYSE) may offer a safer way to broaden your choice of technology stocks. Diebold is an example of how an old technology company can reinvent itself by taking advantage of Internet-enabled applications to create valuable services for customers. Founded in 1859, Diebold's product line included safes, hangman trap doors, and padded cells. Today, it's the largest provider of automated teller machines in the United States and is expanding rapidly internationally, chasing NCR Corp. (NCR-NYSE).
The ATM marketplace in the United States is mature, and banks have never been known for their lightning-quick adoption of new technology, which explains why the promise of ATM-based purchasing of stamps and movie tickets has been slow to take hold. Diebold not only has this capability, but it also can offer ATM applications allowing Web-enabled services such as check cashing, wire transfers, personalized user interfaces, and live news feeds.
Wells Fargo & Co. has Web-enabled 800 ATMs this year, with its remaining 5, 600 to be converted in 2001. Bank of America will have 22 Web-enabled machines this year and will upgrade the rest of its 14,000 ATMs over time. ATMs are also prime apps for biometric technology, replacing ATM cards and personal identification numbers with fingerprint scans or facial recognition. Biometrics companies such as Identix Inc. and Sensar Inc. have technology that greets users by name and lets them withdraw any amount of money they wish, so forget about that $300 limit. Diebold has a lease with automated check-cashing company InnoVentry Corp. for 1,800 ATMs that use facial- recognition technology.
All this Web-enabled and biometric technology will gain acceptance in time. Just as important for Diebold's stock is how the company executes internationally. Diebold was heavily reliant on IBM's distribution to sell ATMs internationally-54% of Diebold's international revenue in 1997 came through that channel. Margins were lousy on those sales, and Diebold was disappointed in volume sold, so the company decided to build its own global operations in 1998. Diebold has acquired ATM manufacturers, service providers, integrators, and distributors since then, including Proficient Computing Solutions Corp. (Procomp) for $225 million and Getronics NV and Groupe Bull for $160 million. These acquisitions give Diebold a strong foothold in Europe and South America. Procomp also makes computerized voting machines, small PCs that can operate on batteries for 12 hours in the middle of the Amazon; it supplied 300,000 of these machines to Brazil. And Diebold last week signed up the No. 1 money-processing equipment company in Scandinavia, Scan Coin Europe AB, to market Diebold gear.
Moving a company from its position as a domestically focused business with dumb-terminal technology to one offering Web-enabled solutions globally requires a strong management team. Diebold found Walden O'Dell, who has years of experience in global distribution, production, and marketing with Emerson Electric, to lead the charge as CEO earlier this year. Greg Geswein began in March as CFO, where he must expand Diebold's international presence with joint ventures and acquisitions.
Competition continues to be fierce in the ATM business. NCR is expanding its product line globally and holding its international lead, while working to take market share from Diebold in the United States. Triton, Fujitsu, and a host of smaller players manufacture ATMs globally. Diebold also faces the difficulty of expanding into the retail space.
Financially, Diebold is a fairly undervalued stock because of the uncertainty of whether the new ATM services will gain ground, and because of the risks in expanding internationally: Brazil, a notoriously unpredictable economy, accounts for 23% of revenue. I believe sustainable revenue growth is about 7% to 8%, excluding acquisitions. On a discounted cash-flow analysis, Diebold is worth $35 a share, or 16 times 2001 earnings-per-share estimates of $2.19. It's now trading a few dollars below that. If Diebold can get domestic banks to accept new ATM technology and can spur international ATM growth, it may have some room to run from its current price.
William Schaff is chief investment officer at Bay Isle Financial Corp., which manages the InformationWeek 100 Stock Index. You can reach him at bschaff@bayisle.com.
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Rick |
