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Fiserv Inc Posted By : admin
Posted On : Sunday, November 16, 2014
Company Name : Fiserv Inc Investment Range : Long
Ticker : NASDAQ:FISV M.Cap.Range : Large-cap
Country : US Stock Price : 70.09
Description :        

FISERV INC (FISV US)

Line of Business            

Fiserv’s operations are primarily in the United States and are comprised of the

a) Payments and Industry Products – The Payments segment primarily provides electronic bill payment and presentment services, debit and other card-based payment products and services, internet and mobile banking software and services, and other electronic payments software and services, including account-to-account transfers and person-to-person payments.

b) Financial Institution Services – The Financial segment provides banks, thrifts and credit unions with account processing services, item processing and source capture services, loan origination and servicing products, cash management and consulting services, and other products and services that support numerous types of financial transactions. "

Geographic Scope

The Company operations are predominantly in US spread across all the 50 states.

Business Model

The following summary describes the components of revenue

a) Processing and Services – In 2013 it represented 84% of the Company’s consolidated revenue, is primarily generated from account- and transaction-based fees under contracts that generally have terms of three to five years. Revenue is recognized when the related transactions are processed and services have been performed.

b) Product – Product revenue, which in 2013 represented 16% of the Company’s consolidated revenue, is derived from integrated print and card production (13%) and software licenses (3%)."

Company Positives        

Stable Cash Flow – FISV generates stable cash flow due to the mission-critical nature of its services

Switching cost – Since the financial institutions used the Company’s it is difficult for banks' switching out their processing software and services.  Customers sign 3-5 year contracts.

Share Repurchases – The Company purchased $578 million and $634 million of common stocks in 2013 and 2012, respectively.

Strong and experienced management – Management of the Company is strong and being part of the Company for a very long time."

Company Negatives       "Inorganic growth – On looking at their past acquisitions the Company has grown inorganically which is reflective in their huge intangible (77% of total assets).

Customer Consolidation & In-Sourcing – From 2004-08, the number of U.S. banks and thrifts declined to 16,700 from 18,300 as banks failed and/or merged.  Further, large banks, which tend to in-source their core processing, grew larger.  FISV's customers gained scale, improving their negotiating leverage and potentially leading to in-sourcing or churn. But this doesn’t seem to be a big threat to the Company.

Pricing pressure – The Company seems to experienced pricing pressure which is evident in their FY’ 2007 and FY’ 2008 margins. But the Company has overcome this with the years."

Company History            

Starting in 1984 as a privately held company, Fiserv transformed itself through a corporate acquisitions strategy resulting in more than 150 acquisitions during the following 25 years. Beginning as a $21 million business with 350 employees, by 2009 it had become a Fortune 500 company.

Fiserv started on July 31, 1984, when Sunshine State Systems, Inc., based in Tampa, Florida, and First Data Processing, based in Milwaukee, Wisconsin, combined to form Fiserv, Inc. Two years later in 1986, Fiserv went public as a $70 million data processor company. Within four years of becoming public, Fiserv was serving a number of large financial institutions in the United States.

As of Q2’ 2014 >>  $4.8 billion in revenue >> 14,500+ clients worldwide >> 700+ solutions >> 170+ patents issued and pending >> 150+ locations >> 21,000+ dedicated associates worldwide"

Customers

Fiserv Inc have approximately 14,500 clients worldwide, including banks, thrifts, credit unions, investment management firms, leasing and finance companies, retailers, merchants and government agencies. The Company has clients that span the entire range of financial institutions in terms of asset size and business model, and the Company’s 50 largest financial institution clients represent less than 25% of annual revenue.

Industry Overview

a) As of a report in 2011, BasFISV competes with two main players in core processing and one in online bill pay.  The combined Fidelity National Information Services and Metavante (""FIS"") and Jack Henry & Associates (""JKHY"") are the other leading core processors; the three top competitors comprise ~60% of the market and >70% of new contract wins.  FISV's CheckFree dominates online bill pay, with more than 80% of large banks as customers, and a logical path to penetrate smaller banks as they increasingly offer online bill pay.

b) 4 million accounts currently managed and traded on the industry-leading Unified Wealth platform from Fiserv, supporting 79 percent of the industry"

Competitors     

a) Fidelity National Information Services and Metavante (""FIS"")

b) Jack Henry & Associates (""JKHY"")"

Earnings Growth Driver

Major driver for the revenue of the Company is subscription fees from the existing customers, and also pitching new product and services to the existing clients.

M&A

a) In Q1’ 2013, the Company acquired Open Solutions Inc. , a provider of account processing technology for financial institutions, for a cash purchase price of $55 million and the assumption of approximately $960 million of debt.

b) In Q3’ 2011, the Company acquired CashEdge Inc. provider of consumer and business payments solutions such as account-to-account transfer, account opening and funding, data aggregation, small business invoicing and payments, and person-to-person payments, for approximately $460 million, net of cash acquired.

c) In Q1’ 2011, the Company acquired Mobile Commerce Ltd. (“M-Com”), an international mobile banking and payments provider, and two other companies for an aggregate purchase price of approximately $50 million, net of cash acquired."

Comments on Financials

a) Fiserv have strong fundamentals which evident from their consistent free cash flow generation.

b) On looking at the balance sheet, the Company has huge intangibles that include goodwill and intangible assets that represent 77% of our total assets at December 31, 2013.

c) On looking at the past 10 year balance sheet the Company has grown their equity from $2.373 billion in FY 2003 to $3.585 billion in FY 2013.

d) Though the Company has seen a margin squeeze in the FY 2007 and FY 2008 it has recovered in a decent way.

e) The Company has decent ROE around 20.58% and ROIC around 11.12%"

Valuations

On looking at the valuation when Compare to the peers it is richly valued at this level.

This stock is buy with a view of long term horizon. Stock can be added whenever there is an opportunity of correction in the valuation.

 
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