Ang Li
Ye Tian
Kyle Pellum
Jack Hainline
Presented, October 14, 2010
• Company Background
• Sources of Revenue
• Recent Acquisitions
• Porter’s Five Forces
• SWOT Analysis
• Competitors
• Valuation
• Recommendation
• 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
• 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
• 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
• 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
• 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 $1 billion in assets. The two functionally distinct core solutions are
Episys and Cruise. Symitar has a 98% customer retention rate.
Source: Jack Henry & Associates Annual Report 2010
• ProfitStars - Provides specialized products and services to financial services organizations of all sizes. Established as part of Jack Henry in 2006 as part of a focused diversification acquisition. Supports more than 8,800 domestic and international financial services organizations, including 42 of the 50 largest domestic banks. They also provide their services to businesses outside the financial industry.
• iPay – Acquired in June 2010, it is the largest independent provider of electronic bill pay in the U.S. iPay’s platform supports 40% of the nation’s community banks and more than half of its credit unions that offer online bill pay services. It services more than 1,700 financial institutions with its easily configurable software.
Source: Jack Henry & Associates Annual Report 2010
• Hardware Sales – Generates revenue through selling computer hardware, hardware maintenance and related services to customers.
Revenue is recognized when the hardware is shipped.
• Software License Fees – Generates revenue through the delivery of application software systems contracted with customer. License allows for product to be used on a single computer at a single location.
• Support & Service – Generate revenue from implementation services, annual support to assist the customer in operating their systems and to enhance and update the software, outsourced data processing services and EFT support services.
Source: Jack Henry & Associates Annual Report 2010
86%
Source: Jack Henry & Associates Annual Report 2010
($ thousands)
Source: Jack Henry & Associates Annual Report 2005-2010
• 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.
• 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
• 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
• 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
•
Large amount of cash, low leverage
Profitability in down market
Strong management
Diversified services
Consistent dividend
•
Difficult to convince businesses to switch
Size relative to competitors
•
Cross sell additional services
Growth through acquisition
Increase market share
•
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)
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
Enterprise value
Jack Henry Fiserv Fidelity
Management
Effectiveness
Profitability
Capital Structure
50
45
40
35
30
25
20
15
10
5
0
P/E
Trailing P/E (ttm, intraday): Forward P/E
Jack Henry & Associates, Inc.
Fiserv, Inc.
Fidelity National Information
Services
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
(All Numbers in Thousands)
• 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