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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

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!