Yujiang Chen (Walter)
Zeyu Chi
Yin-Jen Kao
Ming Li
Yuqing Zhang
Presented 11-10-2015
Agenda

Current Holdings

Review Company and Its Business

Macroeconomics Overview

Industry Overview

Financial Analysis

Comparable Analysis

Projection and Valuation

Recommendation
Current Holdings


Purchased: 200 shares @ $36 on Nov 11,1999

Cost basis: $7,200

(We experienced two different 2 for 1 splits, resulting in the ownership of
800 shares at an adjusted cost basis of $9/share)
Sold: 400 shares @ $22.53 on January, 2007


Sold: 200 shares @ $56.75 on November, 2013


Realized Gain on Sale: $5,412 (+150.33%)
Realized Gain on Sale: $9,550
Current market value: $78.50*200 (11/9)
Vs. our $9/share cost basis = Gain: $13,900 ( +772.22%)
Company Introduction

Established since 1979, headquartered in Monett, Missouri

Listed on NASDAQ on October 29, 1985

Industry: Business Software & Services

Provides technology solutions and payment processing services for
financial services organizations

Serves nearly 10,900 financial institutions through three brands:
Source: Annual Report (Pg.7-8)
Business Segments
• Provides electronic payment
business and accounting ledger
services to commercial banks
• Clients include nearly 1,200 banks
• More than 6,500 commercial banks
and savings institutions in this asset
range
Jack Henry
Banking®
Source: 10-K (Pg.5)
Business Segments
• Provides electronic payment
business and accounting ledger
services to Credit Unions
• Serves credit unions of all sizes,
with almost 800 credit union
customers
• Over 6,500 domestic credit unions
in industry
Symitar®
Source: 10-K (Pg.5)
Business Segments
• Provides specialized products and
services to FI customers
• Serves financial services
organizations of all asset sizes and
charters,
with approximately 10,500 domestic
and international customers
ProfitStars®
Source: 10-K (Pg.5)
• Information Security & Risk Management
• Business Intelligence & Financial
Performance
• Training & Consulting
Business Overview


Revenue:

Support and service revenue (95%)

Hardware revenue (5%)

License revenue (<1%)
Key Strategies


Provide banks and CU with core software systems

Expand each core customer relationship

Capitalize on diversification acquisitions
Key Risks Involved

Information Security

Operational Risk

Restatement of financial statement
Source: 10-K (Pg. 6-7, 12-16, 21)
Revenue
Thousands
1,400,000
1,200,000
1,000,000
800,000
600,000
94%
95%
96%
2013
2014
2015
400,000
200,000
-
Support and Service
Hardware
License
Estimate of Support and Service Revenue
Support and Service Revenue
Year Ended June 30
Support and service
Percentage of total revenue
Change
2015
2014
$1,200,652.00
$1,112,331.00
96%
95%
8%
Estimate support and service revenue breakdown using changes
Support and Service Revenue
Estimation
Year over Year
$ Change
% Change
2014E
2015E
In-House Support & Other Services $
3,603
1%
327,913
331,516
Electronic Payment Services
38,321
9%
425,789
464,110
In-House Support &
Others
Outsourcing Services
35,490
15%
236,600
272,090
Outsourcing
Implementation Services
8,704
13%
66,954
75,658
Implementation
Bundled Products & Services
2,203
4%
55,075
57,278
Total Increase
88,321
1,112,331
1,200,652
Electronic Payment
Bundled Products &
Services
Acquisition Strategy
 Complement internal growth, diversification, and expand product offerings
 29 acquisitions since the end of fiscal 1999
 Increasingly difficult to find proven products/services to optimize the clients’
operational issues.
Fiscal
Year
Company or Product
Name
Products and Services
Acquisition Payment
(in Thousands)
2015
Portfolio management systems and factoring software
10,000
2014
Mobile banking, web development and data-enriched marketing
technology
27,910
2010
Internet and telephone bill payment services
301,143
2010
Payment processing solutions for credit unions
61,841
2010
Integrated technology and payment processing solutions
67,617
Source: 10-K (Pg. 7)
SWOT Analysis
Strengths
Weaknesses
• Integrated product lines
• Strong business relationship
• Internal control over financial
reporting
• Relative Small size to rivals
Opportunities
Threats
• Acquisition strategy
• Outsourcing
• Banks internalized the IT
systems
• Uncertainty in Banking industry
Macroeconomic Overview
Banking and credit union industry is expected to grow.
Assets (loans) of credit union
Source: Federal Reserve Bank of St. Louis
Assets of all commercial banks
Macroeconomic Overview
Total number of credit unions and commercial banks keeps decreasing. The
number of credit unions has decreased by 30% since 2006, and the number of
commercial banks has decreased by 26% since 2006.
Number of credit union
Source: Credit Union National Association
Federal Reserve Bank of St. Louis
Number of all commercial banks
Industry at a Glance
JKHY Mainly serve commercial banking and credit union industry
Commercial banking revenue
Source: www. IBIS World.com
Credit union revenue
Porter’s Five Forces
Entry of new competitors:
Medium
• No formal prohibitions
• Difficult for new
companies to gain
customers
• Economies of scale
Determinants of buyer
power:
Low
• Reluctant to change
• More banks show
preference for
outsourced delivery
Threat of substitutes:
Low
• Long term contracts
Rivalry determinants:
High
• Highly competitive and
consolidation market
• Various larger competitors
with more resources and
advanced technology.
• High switching cost
Determinants of Supplier
Power:
Low
• Hardware and software
markets is fairly
competitive
Major Competitors Overview
1.Fidelity National Information Service, Inc.
Provides banking and payments technology, consulting, and outsourcing service
worldwide

Electronic funds transfer services

Core processing software applications to run banking processes

Payment service such as outsourced card-issuer services and customer support
2. Total System Services, Inc.
Provides electronic payment processing services to banks and other financial
institutions in the United States, Europe, Canada, Mexico, and internationally.

Account processing

Processing services, related systems, and integrated support services
Major Competitors Overview (cont.)
3. Global Payments Inc.
Provides payment for credit cards, debit cards, electronic payments, and check-related services,
operates in both North America and International market.

Authorization processing

Settlement and funding processing

Customer support

Payment card industry security
4. DST Systems Inc.
Technology-based information processing and servicing in the United States, United Kingdom,
Canada, Australia, and internationally.

Customers information processing service

Maintaining investor identification and ownership records
Stock Market Prospects and Comparison
JKHY generate superior return over its competitors over
the past ten years.
Source: Yahoo Finance
11/9/2005-11/9/2015
Technical Analysis
Source: Yahoo Finance
Ratio Analysis
Turnover Ratio
Profitability Ratio
41%
41%
42%
42%
43%
22%
23%
23%
25%
25%
14%
15%
15%
16%
17%
2011
2012
2013
Gross Profit Margin
2014
4.55
4.77
5.00
3.76
3.84
3.96
2.50
2.42
2011
2015
2012
2013
2014
Assets Turnover
Greenblatt Ratio
DuPont Analysis
120.00%
2.00
100.00%
60.00%
44.88%
48.49%
47.66%
21.19%
23.06%
1.00
40.00%
20.92%
0.50
20.00%
0.00%
0.00
2013
Tax Burden
Interest Burden
Assets Turnover
Leverage Ratio
Source: 10-K
2014
2015
Profit Margin
59.47%
56.18%
1.50
80.00%
2012
2.84
Fixed Assets Turnover
Net income Margin
2011
4.27
2.80
Account Receivable Turnover
Operating Profit Margin
5.23
2011
2012
EBIT/Tangible Assets
2013
30.44%
29.52%
2014
EBIT/Enterprise Value
2015
Comparable Analysis
Source: capital IQ, Yahoo Finance
Income Statement Projection
CONSOLIDATED STATEMENTS OF INCOME
-in Thousands
Forcasted
2015
REVENUE
License
YoY Growth
Unrealized Revenue from Restatement
Support and service
YoY Growth
Unrealized Revenue from Restatement
$2,635.00
20.65%
2016E
$40,403.23
143.50%
33,987.00
2017E
2018E
2019E
2020E
$74,390.23 $108,377.23 $142,364.23 $176,351.23
0.00%
0.00%
0.00%
0.00%
33,987.00
33,987.00
33,987.00
33,987.00
1,200,652.00 1,311,229.50 1,465,743.28 1,648,284.63 1,864,658.29
7.94%
9.21%
11.78%
12.45%
13.13%
(16,250.4)
(16,250.4)
(16,250.4)
(16,250.4)
2,122,238.08
13.81%
(16,250.4)
In-House Support & Other Services
YoY Growth
324653.00
1.00%
340885.65
5%
361338.79
6%
386632.50
7%
417563.10
8%
455143.78
9%
Electronic Payment Services
YoY Growth
472127.00
9.00%
519339.70
10.00%
576467.07
11.00%
639878.44
11.00%
710265.07
11.00%
788394.23
11.00%
Outsourcing Services
YoY Growth
280175.00
15.00%
325003.00
16.0%
380253.51
17.0%
448699.14
18.0%
533951.98
19.0%
640742.37
20.0%
Implementation Services
YoY Growth
93694.00
13.00%
107748.10
15%
123910.32
15%
142496.86
15%
163871.39
15%
188452.10
15%
Bundled Products & Services
YoY Growth
30003.00
4%
34503.45
15%
40024.00
16%
46828.08
17%
55257.14
18%
65755.99
19%
Hardware
YoY Growth
52,903.00
-9.81%
51,844.94
-2.00%
50,808.04
-2.00%
49,791.88
-2.00%
48,796.04
-2.00%
47,820.12
-2.00%
1,256,190.00 1,403,477.67 1,590,941.55 1,806,453.74 2,055,818.55
7.08%
11.72%
13.36%
13.55%
13.80%
2,346,409.43
14.14%
Total revenue
YoY Growth
License accounts for less than
1% of total revenue. Based on
10K, license revenue fluctuates
year over year, so we assign a
growth rate of zero to smooth
out. Also, because of the
accounting error, we added
back unrealized revenue from
restatement of annual report
for the next five years.
Growth rate based on the
asset growth rate of
commercial banking and
credit union industry
Based on 10K,
management team
forecasts a strong growth
trend in outsourcing
service.
WACC & FCF Valuation
WACC Calculation
CAPM Calculation
CAPM based Cost of Equity
7.76%
Beta
Return to shareholders over the past 5 years
25.17%
Risk-Free
2.20%
Cost of Equity
11.24%
Market Premium
7.50%
Cost of Debt
3.18%
Cost of Equity
7.76%
Current Stock Price
78.77
Shares Outstanding (thousands)
79,929.13
Debt (thousands)
52,700.00
Equity (thousands)
6,296,017.41
Equity Weight
99.17%
Debt Weight
0.83%
Tax Rate
35.00%
WACC
11.16%
Business Risk Premium
0.50%
Discount Rate
11.66%
Perpetual Growth Rate
3.00%
0.74
WACC & FCF Valuation
Sensitivity Analysis
Terminal Growth Rate
Discounted
Rate
72.51611167
10.66%
11.16%
11.66%
12.16%
12.66%
2.000%
74.73
70.51
66.74
63.34
60.25
2.500%
78.26
73.61
69.47
65.76
62.41
3.000%
82.26
77.09
72.52
68.45
64.80
3.500%
86.81
81.02
75.94
71.44
67.44
4.000%
92.05
85.50
79.80
74.81
70.39
Recommendation
 The price calculated from DCF valuation and
Comparable valuation is 7.75% less than current stock
price, which is within the 10% fluctuation range
Current Stock
Price:$78.50
 More efficient cost management
Comparable
Analysis:$72.85
 Utilizing
conservative cash
flow forecast
DCF Valuation:$72.52
Hold