FISV - Fiserv

[KCLarkin]

Starting a thread on Fiserv. h/t kab60

 

Fiserv also interesting, 75b mcap, 30b FCF towards 2025 per management - a large part of which will be towards buybacks. DD eps growth. Massive buybacks, undemanding valuation and high ROIC organic growth can be very powerful.

 

Good thread from the Dec 2020 investor day presentation:

 

Initial impression: A "value" bet on the payments industry.

 

Barrons article looking at relative valuations in the payments industry (Nov 20, 2020:

https://www.barrons.com/articles/wall-street-is-getting-more-bullish-on-square-and-fiserv-stock-heres-why-51605890864

 

 

[gokou3]

Link to presentation:

https://investors.fiserv.com/events/event-details/2020-fiserv-investor-conference

 

[kab60]

Just wanted to point out that I made a mistake in my quick summary. They will have 30B at their disposition towards 2025 per guidance, so some of that might be debt from their growing debt capacity and not FCF per se. Doesn't change much, I expect and hope they cannibalize themselves.

[RichardGibbons]

Questions I have copied from the other thread:

 

Fiserv also interesting, 75b mcap, 30b FCF towards 2025 per management - a large part of which will be towards buybacks. DD eps growth. Massive buybacks, undemanding valuation and high ROIC organic growth can be very powerful.

 

I owned Fiserv from mid-2010 until January 2020, and that reliable high-ROIC growth was what I liked about the business. The reason I sold it was that organic top line growth seemed like it was approaching GDP growth levels. It seemed to me as though the merger with First Data was two wide-moat but low-growth companies trying to distract from the fact that neither business had a plausible growth strategy.

 

Am I wrong in that assessment? Do you have a theory about why Fiserv will have solid organic top line growth for the next few years (or the next decade, ideally)?

[kab60]

You know the business better than I, I think, but check out Clover and Carat, their POS and online payment solutions. Those are the quickest growing segments. Analyst estimates 16b in revenue this year and 17b and 18b in the years 2022 and 2023 (for all of Fiserv), which should be above GDP growth. Combined with margin expansion and massive buybacks the FCF/share growth could be very large. The growth of Clover and Carat is quiet impressive, and I think they have a distribution advantage. It's interesting when you compare the growth and GMV to something like Square and look at the relative valutions. Square could be overpriced, you can't eat relative performace, but Fiservs FCF yield was close to 6% pct a month or two ago, and it's easy to get to double digit growth for a long time if one believes their guidance and continued growth. Seems they have a pretty good ttack record. Small position for me, I'm not an expert on payments, but below 110 was too tempting as you had technical pressure from Melvin Capital (biggest long) and KKR overhang (15 pct stake).

[KCLarkin]

I owned Fiserv from mid-2010 until January 2020, and that reliable high-ROIC growth was what I liked about the business. The reason I sold it was that organic top line growth seemed like it was approaching GDP growth levels. It seemed to me as though the merger with First Data was two wide-moat but low-growth companies trying to distract from the fact that neither business had a plausible growth strategy.

 

Am I wrong in that assessment? Do you have a theory about why Fiserv will have solid organic top line growth for the next few years (or the next decade, ideally)?

 

Tourist here. But Square and Clover seem to be similar GPV and similar growth rates. SQ market cap is $100B. FISV market cap is $80B. I assume SQ is simply overpriced but it is an interesting anomaly.

[KJP]

I owned Fiserv from mid-2010 until January 2020, and that reliable high-ROIC growth was what I liked about the business. The reason I sold it was that organic top line growth seemed like it was approaching GDP growth levels. It seemed to me as though the merger with First Data was two wide-moat but low-growth companies trying to distract from the fact that neither business had a plausible growth strategy.

 

Am I wrong in that assessment? Do you have a theory about why Fiserv will have solid organic top line growth for the next few years (or the next decade, ideally)?

 

Tourist here. But Square and Clover seem to be similar GPV and similar growth rates. SQ market cap is $100B. FISV market cap is $80B. I assume SQ is simply overpriced but it is an interesting anomaly.

 

I've also just begun to look at payments companies given the tailwinds (a bit late on that!).  How much of Square's market cap relates to the possibilities of Cash App rather than its POS/merchant acquiring business?  It's impossible to know for sure, but I don't think Clover and Square are apples-to-apples. 

 

As more business shifts online, are traditional merchant acquiring businesses (I realize Fiserv is more than this) at a disadvantage to broader industry vertical software offerings that contain payments modules within them, e.g., why would a restaurant bother with a separate merchant acquiror if their overarching software platform (e.g., PAR Technology's offering) also offerings embedded payments?  Same for ShopPay, EtsyPay, and so on.

 

 

[kab60]

I owned Fiserv from mid-2010 until January 2020, and that reliable high-ROIC growth was what I liked about the business. The reason I sold it was that organic top line growth seemed like it was approaching GDP growth levels. It seemed to me as though the merger with First Data was two wide-moat but low-growth companies trying to distract from the fact that neither business had a plausible growth strategy.

 

Am I wrong in that assessment? Do you have a theory about why Fiserv will have solid organic top line growth for the next few years (or the next decade, ideally)?

 

Tourist here. But Square and Clover seem to be similar GPV and similar growth rates. SQ market cap is $100B. FISV market cap is $80B. I assume SQ is simply overpriced but it is an interesting anomaly.

 

I've also just begun to look at payments companies given the tailwinds (a bit late on that!).  How much of Square's market cap relates to the possibilities of Cash App rather than its POS/merchant acquiring business?  It's impossible to know for sure, but I don't think Clover and Square are apples-to-apples. 

 

As more business shifts online, are traditional merchant acquiring businesses (I realize Fiserv is more than this) at a disadvantage to broader industry vertical software offerings that contain payments modules within them, e.g., why would a restaurant bother with a separate merchant acquiror if their overarching software platform (e.g., PAR Technology's offering) also offerings embedded payments?  Same for ShopPay, EtsyPay, and so on.

Clover seems to offer a lot more than just merchant acquiring. First Data (which merged with Fiserv) bought it to have a viable competitor to Square, and if you compare the numbers it seems they've done a very good job. First Data CEO, who seems to get credit for Clovers' succes, is now the CEO of Fiserv. I agree it is not Apples to Apples to compare it with Square, but it is also just a smaller part of Fiserv (and Square looks crazy overpriced on its own, but I always struggle with highfliers so what do I know).

[Spekulatius]

Yes, the value difference between FISV and SQ is mind boggling.

 

FWIW, a lot of traditional financial companies have fintech under the hood that would be worth a pretty penny stand-alone. For example this is what I found for a smaller holding of mine (FAF):

https://twitter.com/clownbuck/status/1366914907644526594?s=21

[RichardGibbons]

Thanks kab60--that's useful. I'll have to think about whether I'd want to get back in.  That is some nice growth in Caret and Clover, though I'd like the top line growth of the overall business to be in the double digits. That said, one thing that I love about the company is its operational leverage. Its earnings growth is so consistently two to three times its revenue growth, so high single digit revenue growth isn't the problem that it might be for other companies.

 

Comparing it to Square, I think the key differences are Cash App and crypto. A huge percentage of Square's market cap is based on the fact that it's viewed as an easy way consumers can enter into the bitcoin universe.  And right now, the market is valuing that opportunity as one values a dream, not how one values discounted cash flows.