Baird Weekly Payments Bytes (March 20, 2020)

Source document: Baird — Weekly Payments Bytes: Oto Analytics/Womply Card Data (2020-03-20); document type: Sellside Baird Weekly Payments Bytes 2020 03 20.

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March 20, 2020
Baird Equity Research
Technology & Services
Business Process Outsourcing
Weekly Payments Bytes

[
Please refer to Appendix
- Important Disclosures
and Analyst Certification]
David J. Koning, CFA
Sr. Research Analyst
dkoning@rwbaird.com
414.298.7494
Robert W. Bamberger, CFA
Research Associate
rbamberger@rwbaird.com
414.298.5094
Patrick A. Schulz, CFA
Research Analyst
pschulz@rwbaird.com
414.298.6218
Our weekly note reviews the most interesting financial tech news tidbits from the past
week, and comments on potential implications for our stocks. We also highlight upcoming
events and comment on the past week's stock performance.
■
Financial Tech Tidbits:
- Square gets conditional approval for industrial loan charter. The company also
received approval from the Utah Department of Financial Institutions for this purpose.
The approval grants Square the ability to operate a bank (expected to launch in 2021).
The main objective will be to provide small-business loans for Square’s Capital lending
business and to offer deposit products.
- Fiserv announced the acquisition of Bypass Mobile, a First-Data ISV and innovator
in enterprise point of sale systems providers and national restaurant chains (link
to note). Fiserv already recognizes all the revenue from Bypass, but now won't have to
pay sales expense (adds to EBIT).
- Transferwise partners with Alipay for international money transfers.The launch
enables TranferWise's now 7 million+ users to send Chinese yuan from 17 currencies to
Alipay users, which serves more than 1.2 billion people worldwide.
- San Francisco-based Oto Analytics (DBA Womply), looked at payment card data
from its merchant acquiring partners during the week of March 13. Lodging -25%
(noted a bigger drop on the way), transportation -85%, arts/entertainment -37%, grocery
stores +87%.
- Shift4Payments to suspend some fees for SMB's for three months. Shift4 Payments
is suspending online ordering fees, gift card fees, and some fees for its SkyTab POS
device, as restaurants are left only with takeout/delivery service following several state
bans on dine-in services.
- Small business lender Kabbage launched a platform for gift certificates to support
local small businesses during the coronavirus crisis. The gift certificates, which range
in value from $15-500, can be redeemed at any time; small businesses receive the
revenue within one business day of purchase.
- Data from our new reality...
- We see a lot of new area codes when working from home.
- Dave: "A 330 area code looks quite safe"
- Client "Never have I yearned so deeply to be back in Akron"
- The girls are schooling from home, and Madeline's history paper on cause and effect of
the virus..."it all points to one thing...we should've bought stock in Amazon before this."
- Dave's pilot friend isn't busy. His cleaning business friend doubled down. His food
distribution brother-in-law sees polar opposites of pace of grocery buying and pace of
restaurant buying. Volatility is scary for everyone.
■
Performance Relative to S&P (chart next page):
- Outperformed by 3%+: None
- Outperformed by 1-3%: None
- Roughly neutral (-1% to +1%): None
- Underperformed by 1-3%: JKHY, V
- Underperformed by 3%+: MA, FLT, FISV, FIS, WEX, GPN, VRRM
INDUSTRY UPDATE
Prices as of 3/19/2020
Ticker
Price
Mkt Cap
(mil)
Rating
Risk
FIS
$105.23
$65,558
O
A
FISV
$84.46
$58,674
O
L
FLT
$193.30
$17,474
N
H
GPN
$130.52
$39,456
O
A
JKHY
$148.57
$11,425
N
L
MA
$227.15
$230,103
O
H
V
$152.25
$344,846
O
A
VRRM
$6.51
$1,067
O
H
WEX
$100.42
$4,408
O
H
Sources: FactSet and Baird Data

March 20, 2020   |   Business Process Outsourcing
Details
Recent Management Travel/Conversations
■
WEX (February 25, 2019) – We traveled with head of IR -- Link
■
V (November 13, 2019) – We traveled with IR -- Link
■
GPN (September 25, 2019) – We hosted a call with COO and CFO -- Link
■
WEX (August 8, 2019) – We traveled with CFO and head of IR -- Link
■
FIS/WP (April 10, 2019) – We traveled with FIS CEO/CFO/IR and WP CEO/IR -- Link
■
FIS (February 19, 2019) – We met with CFO/IR -- Link
■
FISV (January 23, 2019) – We hosted lunch with CEO/CFO/IR -- Link
■
JKHY (December 9, 2018) – We traveled with CFO for two days in Europe - Link
■
FDC (August 19, 2018) – We traveled with head of IR – Link
■
MA (June 21, 2018) – We traveled with CFO and EVP IR for four days - Link
Recent Data Points
■
February US retail sales (March 17) - Link
■
February UK Barclaycard Retail Sales (March 10) - Link
■
Most Interesting 10-K/10-Q Datapoints (March 6) - Link
■
Debt review across Fintech (March 6) - Link
■
January International Passenger Travel Data (March 5) - Link
■
2020 Core Processing Survey (January 8) - Link
■
December currency update within fin tech (December 31) - Link
Recent Performance
.
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Price Targets and Risks
Price Targets
■
FIS (FIS-Outperform) – Our $156 price targetreflects ~21.5X our 2021E EPS of $7.30. Our ~21.5X
multiple reflects a ~30% premium to the current S&P's NTM P/E, above the FIS/WP three-year
combined average of 16%, as (1) faster-growth Worldpay is now in the FIS/WP fold, and (2) EPS
growth will likely grow faster over the next few years (likely high teens) than in recent years.
■
Fiserv (FISV-Outperform) – Our $126 price targetreflects ~21.5X our 2021E EPS of $5.85. This
reflects ~30% premium to the S&P's NTM P/E, similar to FISV's three-year average of ~30%. We
think faster growth profile is offset by slightly higher leverage, resulting in an average premium of the
past few years.
■
FleetCor (FLT-Neutral) – Our $304 price targetreflects ~20.5X our 2021E EPS of $14.78. This reflects
a ~25% premium to the S&P's NTM P/E, above the three-year average of 12% (range is 15% discount
to 39% premium). We admit that FLT has some cyclical risks around fuel, travel volumes, etc., which
make it viewed to be a little more macro sensitive.
■
Global Payments (GPN-Outperform) – Our $195 price target reflects ~21.5X our 2021E EPS of
$8.98, reflecting ~36% premium to the S&P's NTM P/E, above three-year average of 26% (range
6-45% premium), given improving leverage, improving EPS growth, and relative safety in a volatile
market.
■
Jack Henry (JKHY-Neutral) – Our $168 price targetreflects ~38.5X our C2021E EPS of $4.34, and
~108% premium to the S&P's NTM P/E, slightly above the three-year average premium of 100%
(below three-year high of ~141%). The stock is currently ~120% premium, so investors are clearly
willing to pay up.
■
MasterCard (MA-Outperform) – Our $314 price targetreflects ~31X our 2021E EPS of $10.10. This
reflects ~90% premium to the S&P's NTM P/E, above the three-year average of 72% (range 36-102%)
due to very strong growth in recent quarters, along with the investment community bidding up the
defensive secular growth companies later in a cycle.
■
Visa (V-Outperform) – Our $196 price target reflects ~28.5X our C2021E EPS of $6.91. This reflects
a ~75% premium to the S&P's NTM P/E, above the three-year average of 58% due to strong ongoing
momentum in payments, strong secular trends, and relative valuations above normal across fin tech
(given lower-than-average cyclical risk).
■
Verra Mobility (VRRM-Outperform) – Our $9 price targetreflects a P/E multiple of ~14.5X our 2021E
EPS of $0.62, which reflects a market multiple. We think the company remains a good asset and
an attractive potential take-out, but is in an uncertain time, and leverage could rise back to ~4X as
EBITDA falls.
■
WEX (WEX-Outperform) – Our $195 price target reflects ~18.5X our 2021E EPS of $10.56. The
~18.5X multiple is ~15% premium to the S&P's NTM P/E, in line with the three-year average of a
15% premium. We admit, there are some cyclical risks around fuel exposure, some travel volumes,
and higher leverage.
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March 20, 2020   |   Business Process Outsourcing
Risks
■
FIS (FIS-Outperform) – Bank consolidation, bank spending fluctuations, acquisition integration,
pricing pressure, client concentration, and currency fluctuations.
■
Fiserv (FISV-Outperform) – Bank consolidation, economic fluctuations on payment volumes, pricing
pressure, weaker bank spending.
■
FleetCor (FLT-Neutral) – Fuel price volatility, currency fluctuations, interest rate risk, travel sensitivity,
acquisition integration risk.
■
Global Payments (GPN-Outperform) – Consumer spending fluctuations, regulatory risk, currency
fluctuations, acquisition integration risk, pricing pressure, increased competition, breach pressures.
■
Jack Henry (JKHY-Neutral) – Bank consolidation, bank spending fluctuations, acquisition
integration, and pricing pressure.
■
MasterCard (MA-Outperform) – Consumer spending fluctuations, regulatory risk, litigation risk,
currency fluctuations, international travel fluctuations, pricing pressure, alternative payment systems,
acquisition integration risk.
■
Visa (V-Outperform) – Consumer spending fluctuations, regulatory risk, litigation risk, currency
fluctuations, international travel fluctuations, alternative payment systems, pricing pressure,
acquisition integration risk.
■
Verra Mobility (VRRM-Outperform) – Client/partner concentration, pricing pressure, leverage,
potential government legislation changes, equity ownership concentration.
■
WEX (WEX-Outperform) – Fuel price volatility, currency fluctuations, interest rate risk, travel
sensitivity, industrial bank subsidiary regulations, acquisition integration risk, customer credit risk.
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March 20, 2020   |   Business Process Outsourcing
Appendix - Important Disclosures and Analyst Certification
Approved on 20 March 2020 10:34EDT/ Published on 20 March 2020 10:39EDT.
Covered Companies Mentioned
All stock prices below are the 3/19/2020 closing price.
FIS (FIS - $105.23 - Outperform)
Fiserv, Inc. (FISV - $84.46 - Outperform)
Fleetcor Technologies Inc. (FLT - $193.30 - Neutral)
Global Payments Inc. (GPN - $130.52 - Outperform)
Jack Henry & Associates, Inc. (JKHY - $148.57 - Neutral)
MasterCard Incorporated (MA - $227.15 - Outperform)
Verra Mobility Corporation (VRRM - $6.51 - Outperform)
Visa Inc. (V - $152.25 - Outperform)
WEX Inc. (WEX - $100.42 - Outperform)
(See recent research reports for more information)
Appendix – Important Disclosures and Analyst Certification
Robert W. Baird & Co. Incorporated (“Baird”) and/or its affiliates expect to receive or intend to seek investment-banking related
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Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over
the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform
(U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months.
Risk Ratings: L - Lower Risk – Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety.
Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings.
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Analyst Certification
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March 20, 2020   |   Business Process Outsourcing
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March 20, 2020   |   Business Process Outsourcing
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