First Data Corporation
Executive Summary
First Data Corporation operates in four business segments: payment services, merchant
services, card issuing services and emerging payments. Payment services primarily
consist of Western Union, Integrated Payment Systems, Orlandi Valuta and ValueLink
companies. Merchant services is comprised of First Data Merchant Services, TeleCheck,
NYCE Corporation, TASQ Technologies, Inc. and First Data Financial Services. Card
issuing services segment includes First Data Resources, First Data Europe, First Data
Solutions and PaySys International, Inc. The emerging payments segment consists of
eONE Global. The remainders of the Company’s business units are grouped in the All
Other and Corporate category, which includes Teleservices, Call Interactive, Achex, Inc.
and Corporate operations. From the following valuations and research we have conclude
we have decided to buy First Data. Precise buy order information can be viewed on the
following page.
UConn Foundation Student Managed Fund
Trade Form
Presentation Date: 03/05/03
Covering managers: Scott Bores
Anticipated date for trade: 03/06/03
Stock Name: First Data Corp.
Ticker: FDC
Decision: Buy
Number of shares: approximately 118 shares
Approximate cash value: $4000
Limits:
Stop Loss: at $26.00 or 20 % of current price
Appreciation review price target: $38.70
Vote results
for: 11 against: 0 Abstain:
Trade executed by: Professor Ghosh
Trade manager present:
University of Connecticut Student Managed Fund
Stock Analysis Report
University of Connecticut - Student Managed Fund
Stock Analysis Report
March 7, 2003
First Data Corporation - NYSE (FDC)
Large Cap: $26.0 billion
Industry: Industrial
Sector:
Conglomerates
Valueline: Timeliness: 2
Safety:
2
Technical: 3
Stock Scouter Rating: 10
Business Summary
First Data Corporation (FDC) operates in four business segments: payment services,
merchant services, card issuing services and emerging payments. Payment services
primarily consist of Western Union, Integrated Payment Systems, Orlandi Valuta and
ValueLink companies. Merchant services is comprised of First Data Merchant Services
(FDMS), TeleCheck, NYCE Corporation, TASQ Technologies, Inc. (TASQ) and First
Data Financial Services (FDFS). Card issuing services segment includes First Data
Resources (FDR), First Data Europe (FDE), First Data Solutions (FDS) and PaySys
International, Inc. (PaySys). The emerging payments segment consists of eONE Global.
The remainder of the Company's business units are grouped in the All Other and
Corporate category, which includes Teleservices, Call Interactive, Achex, Inc. and
Corporate operations.
In June 2002, the Company acquired E Commerce Group, Inc. (ECG), an electronic bill
payment and presentment company based in New York. ECG will operate as a part of the
Western Union family of businesses.
Payment Services
This segment is a provider of non-bank money transfer and payment services to
consumers and commercial entities, including money transfer, official check and money
order. Western Union utilizes an agent network of over 50,900 agent locations in North
America (United States, Canada and Mexico) and 68,800 international agent locations to
provide money transfer services to consumers in 186 countries and territories. Through
Western Union's Easy Pay and Quick Collect services, FDC also offers bill payment
services to utility companies, collection agencies, finance companies and other
institutions. Money transfer transactions totaled 108.8 million in 2001, compared to 88.9
million in 2000 and 73.5 million in 1999. ValueLink develops, implements and manages
pre-paid stored-value gift card programs with brick and mortar, Internet, business-tobusiness and international applications for more than 100 major national retail, restaurant
and grocery brands. Payment services revenue comprised 42% of FDC's total revenues in
2001.
In the payment services segment, Western Union signed agreements with 7-Eleven, RiteAid and Publix. These agreements, signed in 2001, are expected to add approximately
30,000 new agent locations by the end of 2003. In addition, Western Union and Orlandi
Valuta signed agreements with Banco Nacional de México, S.A. (Banamex CitiGroup),
in 2001, for Banamex CitiGroup to become an agent in Mexico for consumer money
transfers. In April 2002, the Company acquired Paymap Inc., a San Francisco-based
financial services company offering proprietary electronic payment services to financial
institutions. Paymap will become part of First Data's Western Union Financial Services
subsidiary.
In January 2001, Western Union acquired Bidpay.com, Inc., a provider of Web-based
payment services to online auction markets. In December 2001, the Company acquired
Gift Card Services, Inc., a provider of gift card solutions that complements its storedvalue business, ValueLink.
Merchant Services
This segment provides merchants with credit and debit card transaction processing
services, including authorization, transaction capture, settlement, Internet-based
transaction processing, check verification and guarantee services. This segment also
provides processing services to debit card issuers and operates an automated teller
machine (ATM). FDMS provides such services as authorization, transaction capture,
settlement, chargeback handling and Internet-based transaction processing. TeleCheck, a
check acceptance company, provides electronic check conversion, check guarantee,
check verification and collections services. NYCE operates an ATM network. It provides
online debit point-of-sale (POS) services and real-time payment solutions such as ATM
management and monitoring services, and debit card issuance and authorization
solutions. TASQ is an outsource provider of credit, debit, ATM, check, Internet and
smart card technology. FDFS provides credit card, debit card and money transfer services
to gaming establishments and their customers. The percentage of FDC's revenues from
this segment's services was 35% during the year ended December 31, 2001.
In the merchant services segment, the Company acquired the remaining 50% ownership
interest in Cardservice International in December 2001. In August 2001, the Company
acquired a 64% interest in NYCE, Inc., which services 48 million debit cardholders
through 44,000 ATMs and 270,000 POS locations. Merchant services formed an alliance
with Deutsche Postbank, a subsidiary of the German postal service, in June 2001. Also, in
March 2001, the Company acquired a majority interest in TASQ, which will complement
First Data FDMS' POS deployment operations.
Card Issuing Services
The card issuing services segment provides a comprehensive line of processing and
related services to financial institutions issuing credit and debit cards, and to issuers of oil
and private-label credit cards. FDR and FDE provide a comprehensive line of products
and processing and related services to financial institutions issuing Visa and MasterCard
credit cards, debit cards and oil company and retail store credit cards. FDS is a provider
of consumer and business solutions in the areas of risk and fraud management and
information verification associated with granting of credit, collecting debt and customer
service. PaySys is a global provider of credit card transaction processing software to
banks, retailers and third-party processors. Collectively, this segment's services
constituted 23% of the Company's total revenues in 2001.
In the card issuing services segment, the Company announced an agreement to process
more than three million cardholder accounts that JP Morgan Chase acquired from
Providian Master Trust in January 2002. In addition, the Company announced that it has
signed a new multi-year contract with Citi Commerce Solutions, Citibank Cards' privatelabel credit card division.
In April 2001, card issuing services acquired PaySys, which provides card processing
software. Also, in March 2001, card issuing services entered into a joint venture and
formed Nihon Card Processing Co., Ltd., the first company in Japan to provide thirdparty credit card processing services.
Emerging Payments
The Company holds over 70% of the outstanding equity in eONE Global. eONE Global
is comprised of govONE Solutions, which provides electronic tax processing services to
banks and governmental agencies, and other developmental companies focused on
business-to-business e-procurement solutions, including the August 2001 acquisition of
Taxware, a provider of worldwide commercial tax compliance systems, and the addition
of Encorus Technologies, in November 2001, which is a provider of mobile payment
products.
In the emerging payments segment, eONE Global acquired Brokat A.G.'s mobile
commerce business unit in November 2001. eONE Global also announced alliances with
Verisign and IBM during 2001. In March 2001, eONE Global launched govONE
Solutions, combining CashTax with the acquired transaction processing business of
govWorks to augment payment solutions for local, state and federal governmental
entities. In August 2001, the Company acquired the assets of Taxware International, Inc.,
a provider of worldwide commercial tax compliance systems.
Financial Data/ Ratio Comparison
Over the last five years, First Data has seen their revenues grow at an average of
10%. At the same time, earning per share has risen 17.1% on average, and their cash
flow has grown at 14.3% on average, but both have also decreased in prior periods. The
has also been growth in both return on equity and return on invested capital after the
boom of 1999, both are expected to be over 10% for the current year. Their dividend has
continued to constantly grow, and is currently paying $0.06/year, and is expected to
increase at the end of the year. They have managed to see increased growth even in a
time when the economy is struggling and their customers are buying less.
Ratio Comparison: For these ratios, First Data was compared to the S&P 500, the
industry, and one of their competitors, Ceridian Corp.
Valuation Ratios
P/E Ratio (TTM)
P/E High - Last 5
Yrs.
P/E Low - Last 5
Yrs.
Beta
Price to Sales
(TTM)
Price to Book
(MRQ)
FDC
CEN
Industry
S&P 500
21.34*
22.37*
22.14
22.04
46.32
130.33
56.87
49.83
13.33
16.55
14.65
16.32
1.16
0.72
1.86
1
3.50*
1.75*
2.99
2.84
6.63
1.73
3.64
4.16
Price to Tangible
Book (MRQ)
Price to Cash Flow
(TTM)
NM
23.47
9.51
6.55
14.73
12.27
18.1
16.31
Price to Free Cash
Flow (TTM)
23.3
15.4
22.4
25.28
88.55
93.15
43.56
61.22
% Owned
Institutions
Dividends
Dividend Yield
FDC
CEN
Industry
S&P 500
0.23
NA
3.32
2.3
0.2
0
0.12
1.31
Dividend 5 Year
Growth Rate
4.24
NM
8.11
-11.03
Payout Ratio (TTM)
2.43
0
8.78
26.07
Dividend Yield - 5
Year Avg.
Growth Rates(%)
Sales (MRQ) vs
Qtr. 1 Yr. Ago
FDC
33.62*
CEN
6.21*
Industry
21.79
S&P 500
8.84
Sales (TTM) vs
TTM 1 Yr. Ago
Sales - 5 Yr.
Growth Rate
EPS (MRQ) vs Qtr.
1 Yr. Ago
EPS (TTM) vs TTM
1 Yr. Ago
EPS - 5 Yr. Growth
Rate
Capital Spending 5 Yr. Growth Rate
Financial Strength
18.38*
0.88*
14.71
4.97
5.49
4.64
37.01
10.56
30.08*
24.18*
15.67
25.05
47.37*
87.54*
34.44
23.72
9.97
-15.15
19.53
9.68
-11.42
3.07
15.59
-13.81
FDC
Quick Ratio (MRQ)
Current Ratio
(MRQ)
LT Debt to Equity
(MRQ)
Total Debt to
Equity (MRQ)
Interest Coverage
(TTM)
Profitability
Ratios (%)
Gross Margin
(TTM)
Gross Margin - 5
Yr. Avg.
CEN
Industry
S&P 500
NM
1.39
1.48
1.15
NM
1.52
1.74
1.67
0.8
0.16
0.42
0.74
0.8
0.16
0.5
0.97
15.65
18.72
-3.01
11.1
FDC
CEN
Industry
S&P 500
42.08
52.01
42.83
47.48
37.92
51.26
42.87
47.78
EBITD Margin
(TTM)
33.39
19.42
-9.88
19.44
EBITD - 5 Yr. Avg.
33.16
15.55
12.32
21.82
Operating Margin
(TTM)
23.99
12.43
-15.81
17.93
Operating Margin 5 Yr. Avg.
20.52
8.64
4.48
18.21
Pre-Tax Margin
(TTM)
23.99
11.94
13.18
16.02
Pre-Tax Margin - 5
Yr. Avg.
20.52
7.47
12.27
17.35
Net Profit Margin
(TTM)
16.22*
7.86*
8.82
10.98
Net Profit Margin 5 Yr. Avg.
13.56
7.29
5.99
11.39
Effective Tax Rate
(TTM)
25.46
37.45
29.51
31.39
Effective Tax Rate
- 5 Yr. Avg.
35.02
35.56
32.74
35.5
Management
Effectiveness (%)
Return On Assets
(TTM)
Return On Assets 5 Yr. Avg.
Return On
Investment (TTM)
Return On
Investment - 5 Yr.
Avg.
Return On Equity
(TTM)
Return On Equity 5 Yr. Avg.
Efficiency
Revenue/Employee
(TTM)
Net
Income/Employee
(TTM)
Receivable
Turnover (TTM)
Inventory Turnover
(TTM)
Asset Turnover
(TTM)
CHART:
FDC
CEN
Industry
S&P 500
5.40*
2.14*
-2.92
6.27
4.47
4.55
2.81
7.67
18.37*
2.39*
0.29
10.19
13.73
6.62
6.4
12.32
33.36*
8.37*
-1.58
18.3
20.41
11.23
12.7
21.29
FDC
CEN
Industry
S&P 500
263,317*
136,668*
278,615
486,486
42,697*
10,737*
25,600
74,468
6.64*
2.64*
6.92
9.67
NA
NA
21.12
11.06
0.33*
0.27*
0.64
0.95
Recent News:
February 20, 2003
First Data Expecting More Growth in Merchant Biz
First Data Corp.'s merchant processing business is doing better than expected this quarter, the company's
chairman and chief executive officer said Tuesday.
Unlike its credit card processing business, whose profits have been flat for the past year, the merchant business is
expected to continue to grow, aided by consumers' steadily increasing appetite for buying with credit and debit
cards.
Charles T. Fote, the chairman and CEO, predicted that by 2010 more than half of all transactions at the point of
sale will be processed electronically, up from around 32% last year. Contributing to that growth will be new places
where cards will be accepted, like gas stations and quick-serve restaurants, he said. Debit cards will help fuel the
growth in card usage, Mr. Fote said at an investor conference in Chicago that focused on First Data's merchant
business. "Up to now consumers have not had the option
Another strength of First Data is that, instead of specializing in one business segment, it handles all types of
merchants, he said. "We can ride winners and manage those with slower growth. We enjoy what national players
give us, and we use them to build stronger relationships in the smaller merchant base."
Growth prospects for the next few years include selling point of sale terminals that can do more things -- accept
loyalty and gift cards, for example -- and getting credit cards accepted at more places, Mr. Fote said.
Scott H. Betts, the president of the merchant services division, said it will concentrate on buying smaller merchantacquirers and promoting itself through its merchant/bank alliances, which bring in more stable clients.
"Attrition varies significantly by channel and the type of merchant," Mr. Betts said. "One thing I am struck by is the
figure when the merchant has a deposit account at the bank. It lowers attrition 20% and is an opportunity for us to
leverage bank relationships to reduce attrition levels."
Among the First Data executives he introduced was Diane Vogt, who will focus on quick-service restaurants and
gasoline stations, two areas where he expects to see growth. Mr. Betts also said that First Data dominated Internet
card transactions -- 70% of them go through the company at some point. He said the merchant processing
business would continue its approximately 17% annual profit growth, which he said would put it slight ahead of the
industry's 15% rate.
First Data plans to hold investor days for its other business segments in the coming months, and Mr. Fote was firm
in making analysts stick to the topic of the day. When one asked a question about international growth, Mr. Fote
deferred the question and asked the audience to wait for a meeting to be held in June in London to discuss that
topic.
Alan Gitles, the CEO of Landmark Merchant Solutions LLC, an independent sales organization in Schaumburg, Ill.,
attended the presentation and said he liked what he heard.
"Their credibility is pretty high, because they generally deliver on what they promise," Mr. Gitles said. "They have a
pretty good hand on the pulse of the business."
Jeffrey B. Baker, a senior research analyst at the Minneapolis-based investment banking firm U.S. Bancorp Piper
Jaffray, said the First Data division's "better-than-expected start" to the year is consistent with what he has seen at
other merchant processors.
Models:
Risk Free Rate:
S&P500 (10 year average return, rm):
Beta:
3.628%
7.930%
1.10
1. DDM Model
k=rf +β(rm-rf): 8.36
Earnings 1993: .39
Earnings 2002: 1.67
ge: (1.67/0.39)^(1/9)-1= 17.552
Average ROE: 18.025 (4 year average)
Average Retention: 1-[(.188+.228+.276+.275)/4] = 75.29%
gr: ROE*retention ration (b)=.17552 *.7529=13.22%
Average g= (.1322+.03628)/2=8.42%
2). Multistage Growth Model
Is not necessary since this is a mature company growth will continue
to be steady.
3). No Growth
Po = Eo/k = 1.90/0.0836 = $22.73
4) P/E Model
Avg P/E ratio 20
Expected EPS (VLIS)= $1.90
5-Year Horizon: $2.75
P/E Ratio: 19.5
Projected high price for the next 5 years: $2.75* 19.5= $53.63
Lowest price in the last 3 years: $23.75
Current Price: $33.65
5. Valuepro.net
Intrinsic Value
Growth Rate
Risk Free Rate
WACC
100.46
17
3.628
8.00
6. SSG Model
Historical Sales
Sales Growth Used
Historical EPS
EPS
14.6%
7.6%
12.5%
9.8%
Recommendation: Buy
Upside/Downside potential
7. Value line Model
FDC: Long Term Debt + Shareholder Equity:
7,000 (million)
Cash Flow Growth Estimate:
12%
Common Shares Outstanding:
762 (million).
Average Annual P/E Ratio:
20
Return on Total Capital:
18%
The Future Price: 7000* 1.10^10 / 762 * .18 * 20 = $102.71
(Discount the future price at 15% for n=10) =
$25.72
This means that we are overpaying for First Data now using conservative estimates, but
the last few years have provided low returns but expectations point to large growth and
an increasing share price.
Ownership Structure
Ownership Summary
% Shares Owned:
86.80
Price Range Quarter:
% Change in Ownership:
2.72
# New Buyers:
# Institutions:
737
# Closed Positions:
Total Shares Held:
652,966,311
3 Mo. Shares Purchased:
70,973,173
# Buyers:
3 Mo. Shares Sold:
(53,661,587)
# Sellers
3 Mo. Net Change:
17,311,586
# Net Buyers:
$0 - $0
91
54
387
340
47
Top Institutional Holders
Institution Name
Shares
Held
Position Value % Shs.
(000)
Out.
Portfolio
Date
FIDELITY MGMT &
RESEARCH CO
60,455,923
$2,140,744.23
8.04% 12/31/2002
BARCLAYS GLOBAL
INVESTORS INTL
28,791,926
$1,019,522.10
3.83% 12/31/2002
ALLIANCE CAPITAL
MGMT
24,921,834
$882,482.14
3.31% 12/31/2002
STATE STREET
GLOBAL ADVISORS
24,340,503
$861,897.21
3.24% 12/31/2002
WELLINGTON MGMT
20,703,646
$733,116.10
2.75% 12/31/2002
GOLDMAN SACHS
ASSET MGMT
19,376,574
$686,124.49
2.58% 12/31/2002
GE ASSET MGMT
18,983,485
$672,205.20
2.52% 12/31/2002
T ROWE PRICE
ASSOCIATES
18,384,327
$650,989.02
2.44% 12/31/2002
STEWART (WP) & CO
17,320,559
$613,320.99
2.30% 12/31/2002
VANGUARD GROUP
13,693,921
$484,901.74
1.82% 12/31/2002
MFS INVESTMENT
MGMT
12,179,864
$431,288.98
1.62% 12/31/2002
AIM CAPITAL MGMT
(HOUSTON)
11,844,211
$419,403.51
1.58% 12/31/2002
HARRIS ASSOCIATES
11,773,684
$416,906.15
1.57% 12/31/2002
PEREGRINE CAPITAL
MGMT
9,758,195
$345,537.69
1.30% 12/31/2002
EATON VANCE MGMT
9,157,120
$324,253.62
1.22% 12/31/2002