Fidelity Beats by a Penny - Analyst Blog
14 Febbraio 2012 - 9:30AM
Zacks
Fidelity National
Information Services Inc. (FIS) reported
fourth quarter 2011 earnings of 66 cents per share, which beat the
Zacks Consensus Estimate by a penny. The better-than-expected
result was driven by strong top-line growth during the quarter.
Quarter
Details
Revenue in the fourth quarter
climbed 7.0% year over year to $1.49 billion and was in line with
the Zacks Consensus Estimate. Revenue increased 4.9% on an organic
basis, driven by strong results from Financial Solutions and
International Solutions.
Adjusted EBITDA increased 5.7% year
over year to $470.0 million, driven by strong revenue growth in the
quarter. However, EBITDA margin declined 30 basis points to 31.5%
in the reported quarter.
Operating income enhanced 4.7% year
over year to $366.5 million, riding on strong revenue growth and
better-than-expected gross margin. However, operating margin
contracted 60 basis points (bps) due to higher selling, general and
administrative expense (up 100 bps), as percentage of revenue, in
the reported quarter.
Segment
Results
Financial Solutions
revenue rose 5.9% year over year (2.1% organically) to $533.4
million, on the back of growth in account processing, higher
services revenue, and the addition of Capco’s North American
operations.
EBITDA declined 2.8% year over year
to $213.7 million. Margin contracted 360 bps to 40.1%, reflecting a
higher proportion of low-margin professional services, including
Capco.
Payment Solutions revenues
climbed 2.2% year over year to $642.0 million in the fourth
quarter. Payment Solutions revenue increased 3.6% excluding a $4.2
million decline in check-related businesses. EBITDA increased 7.2%
year over year to $257.1 million while margin expanded 180 bps to
40.0%.
International Solutions
revenue increased 18.9% year over year (14.9% organically) to
$318.8 million. The strong results were driven by higher volumes
from Brazil card processing operation and the addition of Capco’s
international operations.
EBITDA increased 14.1% year over
year to $92.8 million. However, EBITDA margin decreased 120 bps to
29.1% in the quarter, reflecting a higher proportion of low-margin
professional services, including Capco.
Liquidity
As of December 31, 2011, cash and
cash equivalents were $415.5 million compared with $386.8 million,
as of September 30, 2011. Fidelity’s balance sheet remains highly
levered. Total debt (including the current potion) at the end of
the quarter was $4.81 billion compared with $4.87 billion in the
previous quarter.
Capital expenditure in the fourth
quarter totaled $78.5 million versus $82.1 million in the previous
quarter. Fidelity generated $308.3 million in adjusted cash from
operations versus $275.5 million in the previous quarter. Free cash
flow (on an adjusted basis) increased to $221.6 million from $193.4
million in the previous quarter.
Recommendation
We believe that Fidelity’s
commanding position in the financial services market, increasing
international exposure, recurring revenue model, diversified
product portfolio, cost synergies from acquisitions and a loyal
customer base will drive growth over the long term. We also believe
that Fidelity’s expansion into emerging markets such as Brazil,
India and China will drive organic revenue growth going
forward.
However, increasing consolidation
in the banking sector, challenging environment for the Payments
Solutions business and uncertain regulatory environment are the
primary headwinds, in our view.
We maintain our Neutral
recommendation on a long-term basis (for the next 6 to 12 months),
primarily due to a highly leveraged balance sheet and intense
competition from other major players such as Fiserv Inc.
(FISV). Moreover, the recently announced
merger of London based banking software maker Misys Plc
(MSY) and Swiss financial services
provider Temenos Group AG (TEMN)
is also expected to provide significant competition to Fidelity
going forward.
Currently, Fidelity has a Zacks #4
Rank, which implies a short-term Sell rating (for the next 1-3
months).
FIDELITY NAT IN (FIS): Free Stock Analysis Report
FISERV INC (FISV): Free Stock Analysis Report
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