November 19, 2013
Charlie Penicook and Zuowei Xu
Agenda
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Introduction
Macroeconomic Outlook
Industry Overview
Company Overview
Financial Analysis
Valuation
Recommendation
The Jack Henry Associates
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Founded by Jack Henry and Jerry Hall in 1976
A provider of information systems and services for
more than 11,900 financial institutions and
corporate entities
Listed in the NASDAQ on October 29, 1985
Industry: Business Software & Services
Source: Jack Henry Company Website
Current Holding Information
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November 11, 1999: Purchased 200 shares at $36.00/share
($7,200 total investment)
2:1 Split twice in 2000 and 2001, which took the holding to
800 shares at $9 per share
January 15, 2007: Sold 400 shares at $22.53 for a realized
gain of $5,412
November 18, 2013 Price: $56.71
 Unrealized Gain: 530.11% ($19,084)
 Total Position Value: $22, 684 (5.08% of total portfolio)
Source: Yahoo Finance
Macroeconomic Outlook
Federal Reserve
Bank
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Banking
Industry&
Credit Union
Business
Software&
Service
The Federal Reserve Bank can control the financial institutions
by controlling the supply of money, raising/lowering the
reserve requirement and through open market operations.
The incoming Chair, Janet Yellen, announced that the Fed
would continue the current Quantitative Easing policy.
Macroeconomic Outlook
Source: JKHY 2013 Shareholder Meeting
Business Software & Service
The IT and business services outsourcing market is at 170 billion in 2012.
And the banking process outsourcing services made up about 85 billion.
Source: Hfs Research, 2013 market sizing
data
Business Software & Service
Service
Online
Mobility
Impact
Industry Forces Analysis
Buyers:
Low
New
Entrants:
Low
Rivalry:
High
Suppliers:
Low
Substitutes:
Medium
Industry Forces Analysis
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Bargaining Power of Suppliers: LOW
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Bargaining Power of Buyers: LOW
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The company’ s technology and service is its
advantage, and the market for suppliers of hardware
is competitive.
Clients are reluctant to change for high switching cost
Threat of New Entrants: LOW
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Dodd- Frank makes it more difficult for new entrants
Economies of scale
Industry Forces Analysis
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Threat of Substitutes: LOW
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Brand advantage, high switching cost
Rivalry among Competitors: HIGH
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Mature market and consolidation
Company Overview
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A Provider of core information processing solutions
for more than 11,300 financial institutions and
corporate entities
Supports 1300 community banks around the
country, about 1/5 of the banks in United States
Supports 760 credit unions, about 1/10 of the
credit unions in United States.
Source: Jack Henry Company Website
Company Overview
Small Banks
Credit Unions
Specialized Products
and service for other
financial institutions
Source: JKHY 2013 Shareholder Meeting
Company Overview
Wide Moat
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High switching cost for core processing service
Focus on small banks and credit unions
Long-term contract with clients to ensure the future
revenue growth
Debt-free, ready to make acquisitions
Source: JKHY 2013 Shareholder Meeting
Company Overview
Source: JKHY 2013 Shareholder
Business Risk Analysis
Economic conditions
Cyclical fluctuations
in banking
Security Problems
New Technology
Government
Regulations
Source:10-K, JKHY Co., FY 2013
SWOT Analysis
Strengths
Weaknesses
- Recurring revenue
- Strong free cash flow for
repurchase and acquisitions.
-
Opportunities
Threats
- More banks tend to outsource
their data and processing
system
- Growth through acquisition
- Banking Failure increases
- Hard to find proven acquisition
target
- Negative Macroeconomic outlook
Relatively small size compared
to rivals
Strategy
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Concentrate on information systems and services for
small banks and credit unions
Develop the latest processing platform and
advancing technologies
Maintain the high levels of customer satisfaction
Strategy change:
 A mobile strategy for online payments
Management Outlook
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Positive
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2012 Performance Reaches All-Time High
Strong sales performances by all brands
Continued strong profit margins
Exceptionally high associate satisfaction ratings
Exceptionally high customer satisfaction ratings
Concerns
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The improved economic situation made bank move the
processing system in-house
Source: JKHY Consolidated Shareholder
Meeting
Recent News
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JKHY Reports 2014 Q1 Earnings: November 5, 2013
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American Airlines Federal Credit Union completes
successful conversion to Symitar Core system: November
13
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9% increase in revenue, 11% increase in gross profits, 17%
increase in net income over the first quarter of fiscal 2013
$5.6 billion in assets and operates as the 13rd largest
credit union in the United States
Jack Henry& Associates announces iPad Compatible
Banking: November 14
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The app supports traditional in-branch and online
transactions
Source: Yahoo Finance
Recent Financial Information
Source: JKHY Shareholder Meeting
Recent Financial Information
Source: JKHY 2013 Shareholder Meeting
Recent Financial Information
The company keeps rising dividend rate for
Source: JKHY 2013 Shareholder Meeting
Recent Financial Information
The company would pay $0.80 dividend per share
at current dividend rate.
Source: JKHY 2013 Shareholder Meeting
Recent Financial Information
The company would continue to repurchase their shares because the they
believe the stock value is undervalued
Source: JKHY 2013 Shareholder Meeting
Current Stock Information
Metric
Current Stock
Price
Trailing P/E
Forward P/E
Dividend Yield
Market Cap
($ millions)
Value
$56.82
26.68
21.69
1.40%
$4.86 B
Source: Capital IQ, Yahoo Finance
Financial Analysis
NOTE: The years above refer to the fiscal years ending on June 30
Financial Analysis
NOTE: The years above refer to the fiscal years ending on June 30
Financial Analysis
NOTE: The years above refer to the fiscal years ending on June 30
Stock Performance
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Roughly in line with peers
High industry growth
Source: Yahoo Finance
Comparable Company Analysis
Source:
Discount Rate
 Regression
6-year (pre-Dodd Frank)
beta of .89
High ROE
 Low debt weight
Paid-down debt
No business risk premium
For demonstrational purposes
Source: Yahoo Finance
DCF Analysis
 Discount:
 10.65%
Terminal Growth:
3.5%
 Current Price:
$56.71
Decision Drivers
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Strengths:
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Stable revenue growth
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Long-term contracts
Increasing Dividend
Paid down debt
New Product offerings
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Concerns:
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Overvalued: Over 100%
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price growth LTM
Net Income growth of 13%
Recommendation
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Valuation Summary:
 DCF:
$ 36.01
 Comps: $41.48
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Recommendation:
 Sell
200 shares @
market price of
$56.71 to realize gain
of $9,542
 Hold Remaining 200
shares.
Questions?