Peer comparison
EVERTEC’s peers include Vantiv Inc (NYSE:VNTV) and Bladex.
Formerly a business unit of Fifth Third Bank until June 2009 and listed in March 2012, Vantiv Inc (NYSE:VNTV) is one of the largest PIN debit and merchant acquirers in the U.S. Similar to EVERTEC, Vantiv derives recurring revenues from clients on long term contracts, typically between three and five years. In addition, its net revenues grew by a rate of 6% annually from 2007 to 2010, despite a fall in housing starts and consumer credit during the period.
In the first quarter, Vantiv increased its revenues and EBITDA margin by 15% and 160 basis points year-on-year respectively. The growth in revenue was a result of an increase in market share, while the margin enhancement was driven by operating leverage. The greatest threat facing Vantiv is potential disintermediation from micro-merchant aggregators.
Bladex, a Latin American financial institution providing short-term financing for international trade, is also a proxy for Latin American growth, like EVERTEC. In addition, Bladex is relatively less risky compared with its financial institution peers, given its Tier-1 capital ratio of 16.6% and a BBB+ rating from Fitch.
For the first quarter, Bladex increased its client base and commercial loan portfolio by 22% and 14% respectively. It also maintained its quarterly dividend of $0.30 per share. While the ownership of a 16% interest in Bladex by several central banks in Latin America is a source of stability, the certain super-majority voting rights they enjoy could be a cause for concern.
Conclusion
EVERTEC is a beneficiary of the secular trend of more consumers using cards in lieu of cash and checks for payments. Attributes such as a high proportion of recurring revenues, high customer retention rates and significant operating leverage makes EVERTEC even more attractive. However, EVERTEC is overvalued at 23.6 times trailing P/E and 16.2 times trailing EV/EBITDA. Moreover, it is highly leveraged with a gearing of 569%. I will advise investors to consider the stock at a lower valuation multiple, and after it has completed its deleveraging efforts.
The article This Stock is a Beneficiary of Changing Payment Habits originally appeared on Fool.com and is written by Mark Lin.
Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Bladex. The Motley Fool owns shares of Bladex. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
