Will An Investment in Vantiv Inc (VNTV) Debit Acquirer Pay Off?

Page 1 of 2

Listed in March 2012, Vantiv Inc (NYSE:VNTV) is a leading, integrated payment processor differentiated by a single, proprietary technology platform. Vantiv offers a comprehensive suite of traditional and innovative payment processing and technology solutions to merchants and financial institutions of all sizes in the U.S., enabling them to address their payment processing needs through a single provider. It was a business unit of Fifth Third Bank until June 2009. The merchant services segment and the financial institution services segment represented 68% and 32% of its 2012 year-to-date revenue as at Sep. 30, 2012.

Vantiv Inc (VNTV)Business Quality

Vantiv is well-positioned as a market leader to capitalize on favorable secular market trends such as the strong continued adoption of electronic payment services and the adoption of new payment technologies and services. According to The Nilson Report dated March 2012, Vantiv is the third largest merchant acquirer and the largest PIN debit acquirer based on number of transactions in the U.S. for its merchant services business segment. Also, Vantiv’s financial institution services segment has a 9% market share in the U.S. based on number of financial institution customers, with more than 1,300 financial institution relationships across the country. Furthermore, its integrated business model with a comprehensive suite of payment processing services allowed Vantiv to cross- sell other value added services to its client base.

Vantiv has a resilient business with strong recurring visible revenues and a diversified customer base. During the market downturn from 2007-2010, Vantiv’s proforma net revenue and EBITDA grew by a CAGR of 6% and 7% respectively. During the same period, housing starts and consumer credit (revolving) fell by a CAGR of 24% and 5% respectively. Also, Vantiv’s recurring nature of transaction fees from its clients results in highly predictable revenue streams. Merchant services clients typically sign three-to-five year contracts; while financial services client usually sign five-to-six year contracts. Vantiv has a diversified customer mix with low concentration – its top 25 merchants and financial institution clients account for less than 13% and 21% of its segment net revenues respectively.

Valuation and Financial Analysis

Vantiv currently trades at a trailing twelve months Price-to-Sales ratio (P/S) of 1.6 and a trailing twelve months EV/EBITDA of 7.8. Vantiv has delivered pro forma EBITDA margins of 50% every year since 2009 and is likely to benefit from margin expansion through operating leverage as its business grows. It also boosts of high free cash flow conversion with low capital requirements. It delivered strong positive free cash flow for three consecutive fiscal years from 2009 to 2011 and for the nine months ended Sep. 30, 2012, which has seen Vantiv’s cash balance grow from $289 million in 2009 to $381 million at the end of the third quarter of 2012. Vantiv is highly geared with a gross debt-to- equity ratio of 177%, as at Sep. 30, 2012.

Competitor/Peer Analysis

Vantiv’s direct competitors include Total System Services, Inc. (NYSE:TSS)Heartland Payment Systems, Inc. (NYSE:HPY) and Global Payments Inc (NYSE:GPN). All three companies compete with Vantiv’s merchant services segment in the area of merchant acquisition and processing; while Total Systems Services also competes with Vantiv in the area of financial institution services. Vantiv, Total Systems Services and Global Payments all trade at close to eight times EV/EBITDA; while the market values Heartland Payment  Systems at a significantly higher EV/EBITDA of 9.5 times due to its higher trailing twelve month ROE. Vantiv is significantly more leveraged than its peers, with Total System Services, Inc. (NYSE:TSS) in a strong net cash financial position and both Heartland Payment Systems and Global Payments having gearing of 90%, half that of Vantiv.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!