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Tickers in this Article: GPN, CMA, BCS, HBC, MA
According to a presentation from financial transaction processor Global Payment (NYSE:GPN) at its investor day, payments via credit and debit cards are growing 13% annually and purchase transactions will rise from 49 billion in 2003 to an estimated 163 billion by 2013. The U.S. represents 48% of the market, and the company estimates it is positioned in nearly every part of the market across the globe and holds a top three market share in each of its 11 core markets. In other words, Global Payments is a leading operator in a fast growing market that is very lucrative and operates with minimal capital needs.

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Second Quarter Update
Revenues improved 8% to $443.5 million. North American merchant services made up the bulk of revenue at nearly 74% and reported robust 9% growth. Europe accounted for 18% and saw sales fall 5%, but top-line growth should improve as the company detailed a joint venture with Spain's 'la Caixa' that is expected to add $25 million to $30 million in sales for the full year and provides a "leading market position in Spain from which to drive long term growth". The Asia Pacific region accounted for the rest and experienced rapid 42% growth.

Total expenses rose 13% and sent operating income down 6% to $83.1 million, though this was still a very healthy operating margin at 18.7% of total sales. Higher income taxes pushed net income down 15% to $53.5 million. Share buybacks slightly tempered the bottom line decrease as earnings fell 12% to 67 cents per diluted share, which met analyst expectations. Overall, North American profitability fell 9% but grew 15% in international markets. (For related reading, see A Breakdown Of Stock Buybacks.)

Outlook
For the entire fiscal year, management expects revenue will increase between 8% and 11% to right around $1.8 billion. It projects to report earnings in a range of $2.54 and $2.65 per share, though expects earnings from continuing operations between $2.95 and $3.06, which excludes acquisition and other charges deemed to be one time and nonrecurring. Compared to last year, this will represent growth between 5% and 9%.

The Bottom Line
Competition is fierce, with global banks including HSBC (NYSE:HBC), Comerica (NYSE:CMA) and Barclays (NYSE:BCS) as well as large credit card operators such as MasterCard (NYSE:MA) all considered rivals and operating large payment networks. Despite the intense competition, Global Payments continues to grow strongly organically and supplements internal growth via acquisitions. The forward P/E multiple is a bit lofty at close to 15, but free cash flow generation is strong and the trailing free cash flow multiple is less than 10. This is a very reasonable entry valuation, given sales and profits have grown close to 16% annually and should continue at a similar level going forward.

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