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Jack Henry & Associates

Jack Henry & Associates. Presented November 11, 2008. Yan Huang Shuang Cheng Guang Lu Chien-Lung Chiang. Part 1: Company Overview. Company Overview Business Model and Revenue Model Industry Analyst and Main Competitors SWOT Analysis RCMP Position. Company Overview. Founded in 1976

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Jack Henry & Associates

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  1. Jack Henry & Associates Presented November 11, 2008 Yan Huang Shuang Cheng Guang Lu Chien-Lung Chiang

  2. Part 1: Company Overview Company Overview Business Model and Revenue Model Industry Analyst and Main Competitors SWOT Analysis RCMP Position

  3. Company Overview • Founded in 1976 • John W. “Jack” Henry visualized and wrote the company's first core banking software package • Provides integrated computer systems and data processing solution for commercial banks • Publicly traded in 1985 (NASDAQ:JKHY) • Headquarters in Monett, Missouri • 1.53 Billion market capital

  4. Three divisions

  5. Jack Henry Banking • Provider of the integrated automation banks need to process business information and financial transactions • Supports approximately 1,700 banks • Two key markets:

  6. Jack Henry Banking Jack Henry banking solutions encompass :

  7. Jack Henry Banking Three functionally distinct core banking platforms

  8. SYMITAR • Founded in 1985 • Acquired in 2000 • Provide core information and transaction procession solutions for credit unions • More than 700 credit unions • approximately 50 integrated complementary products and services

  9. SYMITAR • Functionally distinct core processing solutions are:

  10. PROFITSTARS • Launched in 2006 • Two Functional segments:

  11. Business Model by Section

  12. Business Model by Function

  13. Business Model by Diverse Clients

  14. Revenue Model

  15. Growth by Acquisitions (1)

  16. Growth by Acquisitions (2)

  17. Industry Analysis Financial Software Service Sustainable competitive advantage: Leading technology in security and operation High quality maintaining service License and renewed contracts Industry Composite 631 Jack Henry ranks 9th

  18. Main competitors

  19. Main competitors

  20. W S • Jack Henry’s capital size and revenue ranked 9th among its competitors • Less resources to invest in upgrading systems • Margins in Jack Henry's service and support segment are relatively low • Good history of dividends payment • Sustainable growth rate • Wide products and services, risk diversified well • Downward trend banking industry is shrinking Jack Henry's customer base • Ongoing declines in the price of computer hardware • Huge Switching cost makes Jack Henry difficult to compete for new business • Banks and Credit Unions relies on core processing systems provided by Jack &Henry • High liquidity, low debt, ability to catch acquisition opportunities • Leading research team to maintain sustainable competitive advantages • Regulatory changes2 O T

  21. Stock Performance

  22. RCMP Position • November 11, 1999 entered position • 200 shares at $36 per share • March 3, 2000 • Stock split 2:1 • March 5, 2001 • Stock split 2:1 • January 15, 2007 • Sold 400 shares at $22.53 • Current position • Own 400 shares • Stock price $18.03 as of November 10th, 2008

  23. Part 2: Accounting Analysis Balance Sheet Income Statement Cash Flow DuPont Analysis 2009 1st Quarter Earning Review

  24. Asset

  25. Liability

  26. Equity

  27. Revenue 21% 17% 14% 14% 12% 66% 68% 72% 75% 78% 13% 15% 14% 11% 10%

  28. Growth Rate over past 5 years

  29. Growth Profit Margin over past 5 years

  30. Income Statement

  31. Financial Health

  32. DuPont Analysis = X = X

  33. Cash Flow

  34. 1st Quarter Earning Review • 5% increase in revenue • Strong growth in support and services revenue • grows at 10% • One time implementation revenues decreased • Electronic payments revenue increased 16% • Other revenue • License revenue decreased 2 % • Hardware sales decreased 24%

  35. Part 3: Valuation Assumptions Discounted Cash Flow Model Relative Valuation Model

  36. Assumptions on Growth Rate Growth Estimation Sustainable Growth Rate: 3.2%

  37. Assumptions on Margin

  38. Other Assumptions Acquisition In USD Thousands

  39. WACC

  40. DCF Valuation (In USD Mn)

  41. Sensitivity Analysis

  42. Relative Valuation

  43. Multiples Calculation

  44. Triangulation

  45. Part 4: Recommendation

  46. Holdings Position

  47. Correlation

  48. Recommendation • DCF model price: $18.39 • Price range from sensitivity analysis:Min=$14.52, Max=$23.74 • Triangulation: $17.01 • Current price: $18.03 as of 11/10/08 • Recommendation: HOLD 400 shares with a limit sell at $20.40 before 12/19/08.

  49. Recap • Current Market Price VS Fair Value $17.75 $17.01 • Our goal: • Hold the 400 shares at current market price • Sell the 400 shares when overvalued by 20%

  50. Three Options • Buy Put Option • Sell Call Option • Limit Sell

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