Current price: $102 Price Target: $137
Position size: 2.75% TTM Performance: -10%
Key Takeaways:
- Results were largely in-line with expectations. They had 11% organic revenue growth in both Q4 and full year, at the high-end of 7% to 12% outlook.
- Analyst day in the next few weeks could be a positive catalyst – the meeting will be focused on their merchant acceptance segment which continues to be the key growth driver for the business. Clover, which is their main product in merchant acceptance, underpinned Value Act’s thesis in taking a stake in FISV.
- Acquiring the remaining ownership interest in Finxact, a leading developer of cloud native banking solutions. Should be growth driver in FinTech segment
Additional highlights:
- Consolidated organic revenue growth of +11% Y/Y in-line with Street expectations
- Acceptance +19% YoY – merchant platforms Clover for small and medium-sized businesses and Carat for enterprises are showing very strong growth. Had a 10% increase in merchant locations. Clover saw 50% GPV growth ($201B annualized volume). Acquisition of BentoBox is helping them enhance service offerings in restaurant vertical.
- Payments +8% YoY– w/in the issuer business they saw notable strength in general purpose active accounts, now ahead of pre-pandemic levels. Zelle transactions up 71% and the number of clients live on Zelle was up 57%.
- FinTech +4% – added 14 new core account processing clients in Q4 and 48 for the year, more than half of which were takeaways; seeing success in cross-selling pan-Fiserv capabilities to clients.
- FDC acquisition targets being met…
- Completed cost synergy program in Q4 – achieved target of $1.2B, $300M above original commitment and 2 years ahead of schedule.
- They’ve seen $480M of revenue synergies and are now at 80% of the increased commitment of $600M. They anticipate obtaining the full $600M by the end of this year, 18 months ahead of schedule.
- Announced Finxact acquisition…
- Will aid in serving financial institution clients as they look to launch modern, flexible, personalized digital banking experiences. Finxact helps clients quickly deploy modular banking services including deposits, loans, cards as well as bank-as-a-service.
Valuation:
- Guidance – segments should grow within the medium-term targets, driving double-digit growth in Merchant (+9-12%), mid-single-digits in FinTech (+4-6%), and mid- to high-single-digits in Payments & Network (+5-8%). Overall organic revenue growth of 7-9% YoY in-line with Street +8%
- Op. margin expansion >150bps
- FY22 EPS growth of +15-17% (midpoint slightly above street’s +15%)
- Valuation is attractive at >6% FCF yield.
Investment Thesis:
- High quality company with strong moat – market share leader with deep moat underpinned by their broad position in the money movement value chain and mission critical technology provided to financial services clients with high switching costs.
- Multiple secular growth opportunities – driven by digitizing money movement and digital transformation in the financial services industry. Open architecture solutions enable financial institutions to leverage Fiserv’s technology and partner with other FinTech providers.
- Margin expansion potential – driven by First Data synergies, deleveraging, and operating leverage driven by growth opportunities.
- Reasonably valued – Compounding FCF per share double digits and reasonable valuation underpinned by secular growth prospects and stable recurring revenue
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109