Yujiang Chen (Walter)
Zeyu Chi
Yin-Jen Kao
Ming Li
Yuqing ZhangPresented 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
Realized Gain on Sale: $5,412 (+150.33%)
Sold: 200 shares @ $56.75 on November, 2013
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 rangeJack 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)
2013 2014 2015 -
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Revenue
Support and Service Hardware License
Thousands
95% 96%94%
Estimate of Support and Service Revenue
39%
27%
23%
6%5%
Support and Service Revenue Estimation
Electronic Payment
In-House Support & Others
Outsourcing
Implementation
Bundled Products & Services
Support and Service Revenue
Year Ended June 30 Change
2015 2014
Support and service $1,200,652.00 $1,112,331.00 8%
Percentage of total revenue 96% 95%
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
Outsourcing Services 35,490 15% 236,600 272,090
Implementation Services 8,704 13% 66,954 75,658
Bundled Products & Services 2,203 4% 55,075 57,278
Total Increase 88,321 1,112,331 1,200,652
Estimate support and service revenue breakdown using changes
Acquisition Strategy
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
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.
Source: 10-K (Pg. 7)
SWOT Analysis
Strengths• Integrated product lines• Strong business
relationship
Weaknesses• Internal control over
financial reporting • Relative Small size to
rivals
Opportunities• Acquisition strategy• Outsourcing
Threats• Banks internalized the IT
systems • Uncertainty in Banking
industry
Banking and credit union industry is expected to grow.
Source: Federal Reserve Bank of St. Louis
Assets (loans) of credit union
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.
Source: Credit Union National Association Federal Reserve Bank of St. Louis
Number of credit union Number of all commercial banks
Macroeconomic Overview
Industry at a Glance
JKHY Mainly serve commercial banking and credit union industry
Source: www. IBIS World.com
Commercial banking revenue
Credit union revenue
Porter’s Five ForcesEntry of new competitors:
Medium• No formal
prohibitions• Difficult for new
companies to gain customers
• Economies of scale
Threat of substitutes:
Low
• Long term contracts
• High switching cost
Determinants of buyer power:
Low• Reluctant to change• More banks show
preference for outsourced delivery
Determinants of Supplier Power:
Low• Hardware and
software markets is fairly competitive
Rivalry determinants: High
• Highly competitive and consolidation market
• Various larger competitors with more resources and advanced technology.
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
Source: Yahoo Finance11/9/2005-11/9/2015
JKHY generate superior return over its competitors over the past ten years.
Technical Analysis
Source: Yahoo Finance
Ratio Analysis
Source: 10-K
2011 2012 2013 2014 2015
41% 41% 42% 42% 43%
22% 23% 23% 25% 25%
14% 15% 15% 16% 17%
Profitability Ratio
Gross Profit Margin Operating Profit Margin Net income Margin
2011 2012 2013 2014 2015
4.55 4.77 5.00 5.23
2.50 2.422.80 2.84
3.76 3.84 3.964.27
Turnover Ratio
Account Receivable Turnover Assets Turnover
Fixed Assets Turnover
2011 2012 2013 2014 20150.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
0.00
0.50
1.00
1.50
2.00
DuPont Analysis
Tax Burden Interest Burden Profit Margin Assets Turnover Leverage Ratio
2011 2012 2013 2014 2015
44.88%48.49% 47.66%
56.18% 59.47%
20.92% 21.19% 23.06%29.52% 30.44%
Greenblatt Ratio
EBIT/Tangible Assets EBIT/Enterprise Value
Comparable Analysis
Source: capital IQ, Yahoo Finance
Income Statement ProjectionLicense 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.
CONSOLIDATED STATEMENTS OF INCOME-in Thousands Forcasted
2015 2016E 2017E 2018E 2019E 2020EREVENUELicense $2,635.00 $40,403.23 $74,390.23 $108,377.23 $142,364.23 $176,351.23YoY Growth 20.65% 143.50% 0.00% 0.00% 0.00% 0.00%Unrealized Revenue from Restatement 33,987.00 33,987.00 33,987.00 33,987.00 33,987.00
Support and service 1,200,652.00 1,311,229.50 1,465,743.28 1,648,284.63 1,864,658.29 2,122,238.08YoY Growth 7.94% 9.21% 11.78% 12.45% 13.13% 13.81%Unrealized Revenue from Restatement (16,250.4) (16,250.4) (16,250.4) (16,250.4) (16,250.4)
In-House Support & Other Services 324653.00 340885.65 361338.79 386632.50 417563.10 455143.78YoY Growth 1.00% 5% 6% 7% 8% 9%
Electronic Payment Services 472127.00 519339.70 576467.07 639878.44 710265.07 788394.23YoY Growth 9.00% 10.00% 11.00% 11.00% 11.00% 11.00%
Outsourcing Services 280175.00 325003.00 380253.51 448699.14 533951.98 640742.37YoY Growth 15.00% 16.0% 17.0% 18.0% 19.0% 20.0%
Implementation Services 93694.00 107748.10 123910.32 142496.86 163871.39 188452.10YoY Growth 13.00% 15% 15% 15% 15% 15%
Bundled Products & Services 30003.00 34503.45 40024.00 46828.08 55257.14 65755.99YoY Growth 4% 15% 16% 17% 18% 19%
Hardware 52,903.00 51,844.94 50,808.04 49,791.88 48,796.04 47,820.12YoY Growth -9.81% -2.00% -2.00% -2.00% -2.00% -2.00%
Total revenue 1,256,190.00 1,403,477.67 1,590,941.55 1,806,453.74 2,055,818.55 2,346,409.43YoY Growth 7.08% 11.72% 13.36% 13.55% 13.80% 14.14%
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 Calculation
CAPM based Cost of Equity 7.76%
Return to shareholders over the past 5 years 25.17%
Cost of Equity 11.24%
Cost of Debt 3.18%
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%
WACC & FCF Valuation CAPM Calculation
Beta 0.74
Risk-Free 2.20%
Market Premium 7.50%
Cost of Equity 7.76%
WACC & FCF Valuation
72.51611167 2.000% 2.500% 3.000% 3.500% 4.000%
10.66% 74.73 78.26 82.26 86.81 92.05
11.16% 70.51 73.61 77.09 81.02 85.50
11.66% 66.74 69.47 72.52 75.94 79.80
12.16% 63.34 65.76 68.45 71.44 74.81
12.66% 60.25 62.41 64.80 67.44 70.39
DiscountedRate
Terminal Growth Rate
Sensitivity Analysis
Recommendation
DCF Valuation:$72.52
Comparable Analysis:$72.85
Current Stock Price:$78.50
Hold The price calculated from DCF valuation and
Comparable valuation is 7.75% less than current stock price, which is within the 10% fluctuation range
More efficient cost management
Utilizing conservative cash flow forecast