Jack Henry & Associates

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Jack Henry & Associates

Ang Li

Ye Tian

Kyle Pellum

Jack Hainline

Presented, October 14, 2010

Overview

• Company Background

• Sources of Revenue

• Recent Acquisitions

• Porter’s Five Forces

• SWOT Analysis

• Competitors

• Valuation

• Recommendation

RCMP Position

12/10/1999 Purchased 200 shares at $36/share.

3/2/2000 2:1 split which took the holding to 400 shares at $18 per share.

3/4/2001 2:1 split which took the holding to 800 shares at $9 per share.

1/15/2007 Sold 400 shares at $22.53 for a realized gain of $5,412

• Current share price = $26.33

• Current Holding Value = $10,384

• Constitutes 9% of invested holdings

• Unrealized gain: $6,932

Jack Henry Stock Overview

• P/E (ttm) : 18.80

• EPS : 1.38

• Market Cap : $2.23 B

• Dividend : $0.38

• Dividend Yield : 1.46%

• 52 week range : $21.01 – $26.50

Information gathered from finance.yahoo.com

Background

• Jack Henry & Associates was founded in 1976 by

Jerry Hall and Jack Henry.

• Headquartered in Monett, Missouri.

• Was first publicly traded on October 29 th , 1985.

• Provides technology driven products and services needed by financial institutions.

• These products and services include transaction processing and managing information for more than 11,200 institutions and diverse corporations.

Source: Jack Henry & Associates Annual Report 2010

Industry Outlook

• The number of banks has declined 11% from

2005 to 2009

• The number of credit unions has decreased 16% from 2005 to 2009

• The company reports that 49% of financial institutions and 26% of credit unions outsource information processing

Source: Jack Henry & Associates Annual Report 2010

Primary Business Units

Jack Henry Banking – Provides banking solutions and the integrated data processing banks need to process financial transactions, automate business processes, and manage information. Serves as the primary technology partner for 1,500 banks ranging from de novo institutions to mid-tier banks. The customer base is comprised of 20% mid-tier banks with assets ranging from $1 B - $15 B. The three functionally distinct core solutions are CIF 20/20, SilverLake System, and

CoreDirector.

Symitar – Performs the same functions as Jack Henry

Banking for credit unions. In the 10 years since it was acquired, it has more than doubled its customer base.

Supports more than 700 credit unions of all asset size, including 35% of credit unions with over $1 billion in assets. The two functionally distinct core solutions are

Episys and Cruise. Symitar has a 98% customer retention rate.

Source: Jack Henry & Associates Annual Report 2010

Primary Business Units

ProfitStars - Provides specialized products and services to financial services organizations of all sizes. Established as part of Jack Henry in 2006 as part of a focused diversification acquisition. Supports more than 8,800 domestic and international financial services organizations, including 42 of the 50 largest domestic banks. They also provide their services to businesses outside the financial industry.

iPay – Acquired in June 2010, it is the largest independent provider of electronic bill pay in the U.S. iPay’s platform supports 40% of the nation’s community banks and more than half of its credit unions that offer online bill pay services. It services more than 1,700 financial institutions with its easily configurable software.

Source: Jack Henry & Associates Annual Report 2010

Sources of Revenue

Hardware Sales – Generates revenue through selling computer hardware, hardware maintenance and related services to customers.

Revenue is recognized when the hardware is shipped.

Software License Fees – Generates revenue through the delivery of application software systems contracted with customer. License allows for product to be used on a single computer at a single location.

Support & Service – Generate revenue from implementation services, annual support to assist the customer in operating their systems and to enhance and update the software, outsourced data processing services and EFT support services.

Source: Jack Henry & Associates Annual Report 2010

Sources of Revenue

86%

Source: Jack Henry & Associates Annual Report 2010

Sources of Revenue

($ thousands)

Source: Jack Henry & Associates Annual Report 2005-2010

Acquisition Strategy

• In 2004 Jack Henry created a Focused

Diversification Acquisition Strategy.

• Under this strategy they look for products that are already sold to JKHY customers, expand their base of customers, sold outside the financial services industry, and/or are sold internationally.

• Since the implementation of this strategy they have acquired 19 companies.

Recent Acquisitions

October 2009 – Acquired Goldleaf Financial Solutions, Inc. This was integrated into ProfitStars division and its products expanded the solutions that can be sold to all financial services organizations.

▫ Acquisition Cost: $67,617,000 (Goodwill: $33,081,000)

October 2009 – Acquired Pemco Technology Solutions, which is a provider of ATM, credit, debit, and prepaid card solutions to the financial industry. The expansion served to gain further market share in the electronic bill payment sector.

▫ Acquisition Cost: $61,841,000 (Goodwill: $19,831,000)

June 2010 – Acquired iPay Technologies, the largest electronic bill pay provider in the U.S. iPay Technologies operates as Jack Henry’s

4 th primary business unit and continues the expansion into the payments industry.

▫ Acquisition Cost: $301,143,000 (Goodwill: $192,345,000)

Source: Jack Henry & Associates Annual Report 2010

Porter’s Five Forces

• Threat of Substitutes (Medium)

High costs to learn to new system, renewal of outsource contracts

• Barriers to Entry (High)

Compliance with regulation, high switching costs

• Power of Suppliers (Low)

Hardware from suppliers accounts for a small portion of revenue.

• Power of Buyers (Low-Medium)

- Buyers resistant to change, customer discounts for additional services

• Rivalry (High)

-

Large competitors and industry consolidation

Recent Dividend Schedule

• Fiscal 2010

4 th Quarter

3 rd Quarter

2 nd Quarter

1 st Quarter

Dividend

$0.095

$0.095

$0.085

$0.085

Fiscal 2009

4 th Quarter

3 rd Quarter

2 nd Quarter

1 st Quarter

Dividend

$0.085

$0.085

$0.075

$0.075

Source: Jack Henry & Associates Annual Report 2010

SWOT Analysis

Strengths

Large amount of cash, low leverage

Profitability in down market

Strong management

Diversified services

Consistent dividend

Weaknesses

Difficult to convince businesses to switch

Size relative to competitors

SWOT Analysis

Opportunities

Cross sell additional services

Growth through acquisition

Increase market share

Threats

Consolidation of commercial banks and credit unions

Economic downturn

Competitive industry

Peer Group

Jack Henry & Associates, Inc.

Bottomline Technology, Inc.

Cerner Corp.

DST Systems, Inc.

Euronet Worldwide, Inc.

Fair Isaac Corp.

Fidelity National International

Services, Inc.

Fiserv, Inc.

Online Resources Corp.

S1 Corp.

SEI Investments Company

Telecommunications Systems, Inc.

Tyler Technologies Corp.

Major Customer banks and credit unions financial institutions healthcare organizations mutual funds, investment managers financial institutions, retailers, service providers and individual consumers

Business Function core information processing solutions electronic payment, invoice and document management solutions healthcare information technology (HIT) solutions information processing and software services and products electronic payments provider banks, credit reporting agencies, credit card processing agencies, insurers, retailers and healthcare organizations.

financial institution provider of analytic, software and data management products and services banks and thrifts, credit unions, savings institutions financial institution, biller, card issuer and creditor clients banks, credit unions, retailers and transaction processors corporations, financial institutions, financial advisors, and families commercial customers, Government customers

Healthcare organizations banking and payments technology solutions, processing services and information-based services integrated information management and electronic commerce systems and services outsourced, Web and phone-based financial technology services provider of payments and financial services software solutions investment processing, fund processing and investment management business outsourcing solutions secure mobile communication technology develops products to prevent and treat infectious diseases, asthma and inflammatory and autoimmune diseases

Stock Performance (1y, 5y 10y growth)

Stock Performance

Company

JACK HENRY AND

ASSOCIATES, INC.

Customers

Commercial banks and savings institutions with less than $30.0 billion in assets;

Credit unions of all sizes;

Other financial institutions of all asset sizes.

Market Size

Provide solutions for 1,500 small to medium banks, 700 credit unions,

8,800 domestic and international customers and 1700 financial institutions.

FISERV, INC.

Banks and thrifts, credit unions, savings institutions, retailers and merchants, leasing companies, lenders, government agencies, and publicly and privately owned companies, and operate centers.

Approximately 16,000 clients worldwide.

Fidelity National Information

Services, Inc.

Customers include 40 of the top 50 global banks, including nine of the top

10, as ranked by Bankersalmanac.com as of November 2009, as well as midtier and community banks, credit unions, commercial lenders, automotive financial institutions, healthcare providers and governments.

Over 14,000 financial institutions and business customers in over 100 countries spanning most segments of the financial services industry.

Compare the key statistics

Enterprise Value

14

12

10

8

6

4

2

0

Enterprise Value (in billion)

Profitability

25,00%

20,00%

15,00%

10,00%

5,00%

0,00%

Operating Profit

Margin

Net Profit Margin

Jack Henry & Associates,

Inc.

Fiserv, Inc.

Fidelity National

Information Services

Management Effetiveness

Jack Henry & Associates,

Inc.

Fiserv, Inc.

Fidelity National

Information Services

18,00%

16,00%

14,00%

12,00%

10,00%

8,00%

6,00%

4,00%

2,00%

0,00%

Return on Assets

(ttm):

Return on Equity

(ttm):

Jack Henry & Associates,

Inc.

Fiserv, Inc.

Fidelity National

Information Services

Qualitative Analysis

Enterprise value

Jack Henry Fiserv Fidelity

Small Big Big

Management

Effectiveness

Profitability

Capital Structure

50

45

40

35

30

25

20

15

10

5

0

Market consensus

P/E

Trailing P/E (ttm, intraday): Forward P/E

Jack Henry & Associates, Inc.

Fiserv, Inc.

Fidelity National Information

Services

Multiples Analysis

Multiples

Trailing P/E Forward

P/E

45.42

12.31

High

Low 17.47

Average 31.445

11.21

11.76

Estimated Price

High 62.32

18.37

Low 23.97

Average 43.14

16.73

17.55

Enterprise

Value/Revenue

2.76

2.70

2.73

17.40

16.82

17.11

Enterprise

Value/EBITDA

10.72

9.02

9.87

Price/Cash

Flow

12.28

8.44

10.36

22.19

17.17

19.68

41.48

28.52

35.00

Range: $17.11 to $35.00

Questionable

WACC

Discounted Cash Flow (Normal Scenario)

(All Numbers in Thousands)

Sensitivity Analysis (Normal Scenario)

Recommendation

• DCF Model Price

+/-

$23.65

$19.33 - $26.21

• Sensitivity Analysis Price Range

$20.98 - $29.82

• Price as of October 13, 2010

$26.33

• Recommendation

Hold 400 Shares

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