Company Overview: Global Payments Inc. (NYSE: GPN) is a global payments technology company that provides software and other solutions and services to small and medium-sized businesses in over 100 countries across North America, Europe, Asia Pacific, and Latin America. The company's revenue-generating segments are Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions.

GPN Details

Key Takeaways from FY21 (ended December 31, 2021)

• Double-Digit Growth in Revenue: The company reported YoY growth of 14.82% in Revenues to USD 8.52 billion in FY21 vs. USD 7.42 billion in FY20, attributable to an increase in transaction volume driven by continued economic recovery and ease COVID-19 restriction.
• Surge in Net Income: In FY21, GPN reported a net profit of USD 965.46 million, increased from USD 584.52 million in FY20, representing a YoY growth of 65.17% with a diluted EPS of USD 3.29.
• Improvement in Operating Margin: GPN reported an operating profit of USD 1.36 billion for the current fiscal, representing a higher operating margin of 15.9% vs. 12.0% for FY20, attributable to 390 bps reduction in selling, general and administrative expense ratio.
• Share Repurchase: In Q4FY21, the company bought back 5,522,243 shares of its common stock for USD 1.54 billion at an average price of USD 127.80. As of January 31, 2022, GPN had raised existing available authorizations to USD 2.0 billion.   

Revenue & Net Income Key Highlights; Analysis by Kalkine Group

Segment Wise Results FY21:

• Merchant Solutions: This segment accounted for 47% of the total revenuein FY21 and reported YoY growth of 20.84% to USD 5.67 billion, attributable to economic recovery from COVID-19 and surge in digital payment solutions.
• Issuer Solutions: It contributed 24% of the total revenuein FY21 and expanded by 4.27% YoY to USD 2.07 billion, primarily due to growth in output services of card and statement production.
• Business and Consumer Solutions: This segment represented 40% of the total revenue in FY21 and witnessed a YoY growth of 6.86% to USD 886.44 million, driven by increase in consumer spending and individual stimulus payment distributed by United States government.

Balance Sheet & Liquidity Position

• Decline in Cash Position: The company exited FY21 with a cash balance of USD 1.98 billion, slightly higher than USD 1.95 billion at the end of FY20.
• Cashflow from Operations: Operating cash inflow in the year ended December 31, 2021, increased to USD 2.78 billion from USD 2.31 billion in the prior corresponding period.
• Increase in Debt: GPN reported total outstanding debt of USD 11.98 billion at FY21 end, higher than USD 9.65 billion as of December 31, 2020.

Recent Developments

• Quarterly Dividend: On February 10, 2022, the company declared a quarterly dividend of USD 0.25 per common share, payable on March 25, 2022, to shareholders of record on March 11, 2022.

Key Metrics: In FY21, GPN's operating and net margins were 15.9% and 10.3%, higher than the industry median of 10.4% and 2.4%, respectively. ROE stood at 3.6%, 150 bps more than the FY20 return. Debt/Equity was 0.47x as of December 31, 2021, higher than 0.35x on December 31, 2020.

Profitability Metrics and Leverage Profile; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 39.20% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and Wellington Management Company, LLP hold the maximum stake in the company at 8.28% and 6.16%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

• Chargeback Losses: When merchants refuse or cannot reimburse GPN for chargebacks that are resolved in their customers' favour, chargeback losses occur. As a result, any increase in chargebacks from merchants who fail to pay could hurt the company's bottom line.
• Third-Party Dependence for Settlements: GPN collaborates with several financial institutions to provide clearing services for its settlement activities. As a result, if these financial institutions stop providing clearing services, GPN may be unable to provide processing services to its clients, jeopardising its financial stability.

Outlook

• Looking forward, in FY22, GPN expects to generate sales in the range of USD 8.42 – 8.50 billion, representing a 9 – 10% YoY growth. It also stated that adjusted EPS for FY21 is expected to be in the range of USD 9.45 – 9.67, up 16 – 19% from FY21 results.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: GPN's share price has corrected 27.34% over the past nine months. The stock is currently leaning towards the lower band of its 52-week range of USD 116.75 to USD 220.81. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of mid-twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its strong margins and robust ROE. We have taken peers like EVO Payments, Inc. (NASDAQ: EVOP) and Automatic Data Processing, Inc. (NASDAQ: ADP). Considering the solid financial performance, robust margins, ease of COVID-19 restriction and economic recovery,  associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing market price of USD 140.50, up 0.52% as of April 04, 2022.

GPN Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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