REAL CLIENT MANAGED PORTFOLIO
EXECUTIVE SUMMARY
To:
By:
Company:
Date:
Real Client Managed Portfolio, Spring 2015
Neha Saoji, Prateek Baveja, Siyu Xu
Jack Henry & Associates, Inc.
March 19, 2015
RECOMMENDATION: HOLD
Macroeconomic Outlook and Industry Overview
The economy is showing decent signs of performance with GDP growth of 2.2% in last quarter. The
unemployment rate has also gone down to 5.8%. We see the Banking and credit union industry is
expected to grow with the recovering economy. Additionally we see that increasing regulations in the
financial service industry such as Dodd-Frank has put lots of limitations on Product and Services
development
Company Overview
Jack Henry & Associates, Inc. (JKHY) was founded in 1976 and is a leading provider of technology
solutions and payment processing services primarily for financial services organizations. The products
and services are offered using 3 different brands. Jack Henry Banking provides banks with information
and transaction processing solutions. Symitar serves credit unions of all sizes and ProfitStars provides
specialized products and services to non-core customers in the financial industry. JKHY's integrated
solutions are available for in-house installation, outsourced services and hosted delivery. The company
generates its revenue through three channels: support and service, hardware sale and license fee, of which
support and service is the main source of revenue with 10% CAGR for the past five years. The company
grows by internal enhancing its functionality as well as strategic acquisitions externally.
Portfolio Position
Currently we hold 200 shares of JKHY at a stock price of $68.86 as of close of March 18. The stock
makes up 7.39% of the total portfolio. To begin with 200 shares were bought at a price of $36 per share
on November 11, 1988. There were 2 stock splits of 2 for 1 making the holding of 800 shares at $9. 400
shares were sold at $22.53 on Jan 15, 2007 with realized gain of $5,412 and another 200 shares were sold
at $56.75 with realized gain of $9,550.
Valuation
We have used DCF and Comparable multiples analysis to value JKHY. Our DCF valuation has given us
an intrinsic value of 66.65, using a discount rate (WACC) of 11.79 and a terminal growth rate of 3%. For
comparable companies we have heavily weighted TEV/EBITA and TEV/Sales multiple in a proportion of
70-30 to arrive at a valuation of 66.29.
Recommendation
We recommend a HOLD for JKHY. The company business model is strong and it has shown strong
financials. The revenue of the firm has been stable in the past 5 years and the company has shown strong
financials and stable revenue stream over the past 5 years. The company has performed exceptionally in
the financial crises and we believe strongly in the management’s ability to lead the company. The
company seems to be fairly valued but needs to be monitored for any major industry volatility.