Global Payments Inc. (GPN)

BUSINESS SUMMARY

Global Payments, Inc. provides payment processing and consumer money transfer services worldwide. The company operates in two business segments, Merchant Services and Money Transfer. The Merchant Services segment provides credit and debit card transaction processing, including VISA, MasterCard, and online and off-line debit card processing; and check-related services, including check verification, recovery, and guarantee services. It also offers VIP Preferred proprietary software products that provide tools for gaming industry to establish revolving check cashing limits for casinos’ customers. This segment also offers sales, installation, and servicing of automated teller machine and point of sale terminals; and card issuing services. In addition, it processes retrieval requests on behalf of merchants for issuing banks, as well as provides chargeback resolution services. The Merchant Services segment serves customers in various industries, including financial institutions, government, professional services, restaurants, universities, utilities, gaming, retail, and health care. The Money Transfer segment provides consumer-to-consumer money transfer services to immigrants in the United States and Europe. As of May 31, 2006, this segment operated 835 retail branch locations in the United States; and 40 branches in Europe. Global Payments markets its products through independent sales representatives, telesales groups, trade associations, alliance and agent bank relationships, retail outlets, and financial institutions. The company has operations in the United States, Canada, Europe, Latin America, Morocco, and the Philippines. The company was founded in 1967 and is headquartered in Atlanta, Georgia.

About Global Payments
With every transaction, with every service, with every product and with every system … Global puts your needs first.

Global Payments (NYSE: GPN) is one of the world’s largest transaction processors and offers worldwide, world-class electronic transaction processing services through our high speed, robust electronic information networks. These networks process billions of business and consumer payment card and money transfer transactions annually for customers in the United States, Canada, Europe and Latin America.

Global Payments also provides comprehensive business-to-business payment card and processing services, such as money transfer, cash management, financial electronic data interchange, management information and reporting services.

While the range and depth of our products and services sets us apart from others in the industry, it is our customer service that truly distinguishes Global Payments. With a relentless commitment to “delight our customers” included in our corporate values, we seek to ensure all our payment and processing services meet the needs of businesses today and set industry standards for the future.

Our team of worldwide, world-class service consultants is committed to helping you and your customers gain every opportunity for growth and profitability in today’s ever-changing and demanding electronic payment economy. Our sales professionals are dedicated to offering innovative products designed to meet your specific needs and help increase your market share and productivity levels. Our IT experts are entrusted to deliver technology-advanced and regulation-compliant software and services.

Global Payments serves an ever-growing variety of consumers, businesses, associations and organizations with a comprehensive line of transaction processing solutions that include:

* Processing services for all credit, debit, gift, purchasing cards and brands
* Electronic check conversion, guarantee, recovery and verification
* Cash access, player-tracking and reporting services for gaming
* Industry-leading POS applications with market-specific features
* Consumer and commercial money transfer services
* Business-to-business payment card services
* Comprehensive connectivity options
* Terminal management and merchant Point-of-Sale support services
* Internet payment, eCommerce processing services
* Advanced merchant accounting
* Fraud monitoring and chargeback protection

Accelerating the transfer of funds and the seamless flow of information

We seek to continually enhance our networks and transaction capabilities to make our services even more beneficial and to seamlessly carry and deliver billions of transactions to millions of service points worldwide. Through our advanced technology, we are well positioned for expanded services and functionality. Our reliable, high-speed data networks and virtual communication links connect you to the information and services that help you to be more productive and effective.

Management Team

Paul R. Garcia,
Chairman, President and
Chief Executive Officer

Paul R. Garcia is Chairman of the Board, President and CEO of Global Payments Inc. (NYSE:GPN), one of the world's leading payment processing companies. He is a pioneer and leader in the financial and payments services industry, having served in management and executive management roles for thirty years. Garcia originally became Chief Executive Officer of NDC's Atlanta-based eCommerce line of business in June 1999. NDC eCommerce began operating as Global Payments Inc. on December 11, 2000, and the new company spun off from National Data on February 1, 2001.

From March 1997 until September 1998, Mr. Garcia was President and Chief Executive Officer of Productivity Point International, Inc. ("PPI, Inc."). PPI, Inc. is a leading provider of instructor-led information technology training to major corporate clients.

Prior to joining PPI, Mr. Garcia was Group President of First Data Issuing Services, a division of First Data Corporation. Mr. Garcia joined First Data Corporation in late 1995, following its merger with First Financial Management Corporation. At the time of the merger, Mr. Garcia was Chief Executive Officer of First Financial Bank and Chief Executive Officer of National Bancard Corporation (NaBANCO), the world's largest processor of merchant Visa and MasterCard transactions.

Mr. Garcia has served on a number of Boards of Directors, including the Global, U.S. and Latin American Boards of MasterCard International and the Electronic Transactions Association (ETA). Currently, Mr. Garcia is a director of Verso Technologies, Inc. In addition, Mr. Garcia is a Trustee of Pace Academy in Atlanta, GA and is a member of the New York Stock Exchange Listed Company Advisory Committee. Mr. Garcia is also a member of the Rotary Club of Atlanta and was honored recently as 2004 Ernst & Young Entrepreneur of the Year® in Financial Services for Georgia, Alabama and Tennessee, and named one of the best CEOs in America by Institutional Investor magazine.

Mr. Garcia is a graduate of Kentucky Military Institute, Louisville, Kentucky; Haberdashers Aske's School, Elstree, Herefordshire, England; and Ithaca College, Ithaca, New York. Mr. Garcia is 52 years old and resides in Atlanta with his wife and six children.

VALUATION MEASURES
Market Cap (intraday): 3.29B
Enterprise Value (7-Jan-07)3: 3.13B
Trailing P/E (ttm, intraday): 24.81
Forward P/E (fye 31-May-08) 1: 19.38
PEG Ratio (5 yr expected): 1.64
Price/Sales (ttm): 4.17
Price/Book (mrq): 4.79
Enterprise Value/Revenue (ttm)3: 3.31
Enterprise Value/EBITDA (ttm)3: 11.991
FINANCIAL HIGHLIGHTS
Fiscal Year
Fiscal Year Ends: 31-May
Most Recent Quarter (mrq): 31-Aug-06
Profitability
Profit Margin (ttm): 14.44%
Operating Margin (ttm): 22.79%
Management Effectiveness
Return on Assets (ttm): 14.59%
Return on Equity (ttm): 18.93%
Income Statement
Revenue (ttm): 943.91M
Revenue Per Share (ttm): 11.903
Qtrly Revenue Growth (yoy): 16.00%
Gross Profit (ttm): 550.04M
EBITDA (ttm): 260.73M
Net Income Avl to Common (ttm): 136.29M
Diluted EPS (ttm): 1.66
Qtrly Earnings Growth (yoy): 35.00%
Balance Sheet
Total Cash (mrq): 168.58M
Total Cash Per Share (mrq): 2.102
Total Debt (mrq): 446.00K
Total Debt/Equity (mrq): 0.001
Current Ratio (mrq): 2.364
Book Value Per Share (mrq): 10.242
Cash Flow Statement
Operating Cash Flow (ttm): 203.07M
Levered Free Cash Flow (ttm): 143.03M

Others Info

Insufficient Funds From Global Payments
By Ryan Fuhrmann, CFA
January 5, 2007

The recent turn of events at transaction processor and money-transfer firm Global Payments (NYSE: GPN) just goes to show you why Benjamin Graham was always wary of growth stocks.

Management summed it up well during this morning's second-quarter conference call. It conceded that "not overachieving expectations is a disappointment for some." In other words, investors were disheartened by the fact that Global Payments was only able to meet earnings expectations, not exceed them as it has regularly done over the past four years. The punishment for posting 18.7% revenue growth and a nearly 19% jump in diluted earnings before stock options expenses was an 18% hit to the stock price.

Benjamin Graham warned of the dangers of growth stock investing nearly 60 years ago, stating that "the more enthusiastic the public grows about it, and the faster its advance as compared with the actual growth in earnings, the riskier proposition it becomes." Fortunately, he also recommended taking advantage of overly high levels of pessimism regarding a company's prospects.

So where does Global Payments stand after the recent share price drop? Based on management's fiscal 2007 diluted earnings guidance of $1.69-$1.75, the shares are still trading at about 24 times earnings. However, the company is a cash-generating machine and has been growing the top and bottom line more than 20% since it was incorporated in 2000.

Over the past three fiscal years, free cash flow has exceeded reported net income by a rather wide margin, speaking to the prodigious amount of cash thrown off by the company's two primary business units. Based on last year's numbers and the current stock price of $40, I estimate that Global Payments would have to grow about 11% per year over the next decade to justify the shares' current price.

That sounds like a piece of cake, given the Global Payments' track record as a public company. However, the company only met expectations for the quarter, and investors are worried that growth may now be slowing from its breakneck pace. I can't say if that is true, and neither could management during the conference call, but the 18% haircut has at least made an investment proposition less risky.

Plus, the overall transaction and money-transfer industries are appealing. Larger competitors such as First Data (NYSE: FDC) have more successful track records. First Data recently chose to retain its payment processing businesses and jettison its money-transfer Western Union (NYSE: WU) unit into a separate firm. Moneygram (NYSE: MGI) is another pure-play money-transfer firm. Global Payments is the fastest-growing of the bunch, but that has attracted a very enthusiastic following and a subsequently emotional crowd, so tread carefully.