First analyst report after the conference:
CKFR: CHECKFREE ANALYST MEETING: IN THE LEAD AND PULLING AWAY
09:15am EDT 15-Sep-99 J.C. Bradford & Co. (Bob Bolen 615-748-9653) CKFR
J.C. Bradford & Co. Research Note
September 15, 1999
CHECKFREE HOLDINGS CORP.
(CKFR-$39 1/4-OTC)
CheckFree Analyst Meeting: In the Lead and Pulling Away
Rating: Buy Robert V. Bolen, CFA
(615) 748-9653
FY June EPS: 1999 2000E 2001E
Shares O/S 1Q ($0.05) ($0.10)
56.8 mil. 2Q $0.00
3Q $0.04
4Q $0.05
Full Year $0.04 ($0.35)($0.10)
Revenue (mil.)$250.1$303.3 $395.2
* CheckFree clearly dominates EBPP; execution will keep it there
* FY00 is absolutely year of inflection; pieces finally falling
into place
* Wingspan Bank.com and Excite latest portals to embrace CKFR's
capabilities
* Stock has about doubled in past month; is once again
approaching estimated near-term fair value, but company is
targeting 25% operating margin in 2002, well ahead of our own
estimate; upside revisions to targets may be in order
Summary: CheckFree held an upbeat analyst meeting yesterday with
presentations from senior management, customers, and industry
consultants. CheckFree is clearly the dominant leader today in
electronic bill payment and presentment (EBPP) and, from all
indications, is pulling away from the crowd. We don't see anyone
even close to CheckFree regarding the breadth and depth of
product or service capabilities. All CheckFree needs to do is
continue to execute well. In an environment that could be called
"coopetition" (cooperation with competitors), CheckFree is
committed to an open platform and is encouraging all industry
players to work together to bring services to market as quickly
as possible, even if the players compete in certain aspects of
the business.
We view the company as a core holding in the financial ecommerce
services space, but would not chase it too aggressively at
present due to its very healthy rebound in recent days and weeks.
Discussion: Distribution continues to expand with a constant
stream of financial institutions signing on, and now portals are
entering the fray. The CEO of Wingspan Bank.com presented and
announced its plans to utilize CheckFree as its EBPP partner
based primarily on its demonstrated leadership in developing and
operating an integrated bill presentment and payment engine at
scale. As well, we were told to expect Excite to launch its EBPP
service using CheckFree by calendar year-end.
Fiscal Year 2000 Goals Were Articulated as Follows:
* Provide dial-tone quality (99.9% uptime), meeting all service-
level requirements
* Sign 55 new billers, bringing the total to 120 of the top 150
(versus 64 at 6/99)
* Have 90 billers in production, up from 29 at 6/99
* Reach for 5 million subscribers, versus 3 million at 6/99 (and
versus our forecast of 4.3 million)
* Continue to develop new products and services that leverage
infrastructure
* Lower per-unit transaction costs 10%
* Remit 55% of bills electronically, up from 50% this past year
* Achieve financial target of EBITDA break-even at a minimum
Reaching 90 implemented billers in major SMSAs positions
CheckFree to offer four bills electronically, widely believed to
be the threshold for mass adoption. Thus, CKFR's growth ought to
accelerate going into 2001.
The Genesis platform is up and running four months ahead of
schedule with over 2 million accounts on the system. CheckFree's
soon-to-be-launched Ebill version 3.0 incorporates several
powerful features that include: (1) Consumer Magnets, which is a
real-time pop-up promotion screen that opens when the consumer
views an ebill. The Magnet is connected to the Dynamic Summary
page such that a discount offer, if accepted, will immediately
result in an adjusted bill. (2) End-to-end total tracking, as
with a FedEx package, always lets the consumer and biller know
where the bill stands. Has it been opened? Paid? Settled? Posted?
Note that V3.0 enables the biller to have a direct relationship
with consumers, which was essentially a mandate from the billers
and is a major reason for CheckFree's impressive competitive
wins. These features are all market firsts and management
believes V3.0 functionality is at least 18 months ahead of the
competition, but in typical CheckFree style, it is already
working on V4.0.
New services will include consumer-to-consumer payments (You've
got Money!), which will likely get its start at the auction sites
(we know how painful the current payment system is). Business-to-
business payments are complex, but CheckFree is working on the
service for launch late this year or early next year. These
services will leverage nicely the current infrastructure and as
such are expected to be highly profitable business lines.
According to consulting firms Gartner Group and Jupiter and
Killen Associates, by 2002, 86% of banks and credit unions will
offer online banking, 25 million households will bank online, 15
million will pay bills online, 70% of the top 280 billers (196
top billers) will be offering ebills, and consumers will be
receiving seven to eight bills electronically. A few of
CheckFree's 2002 goals were mentioned and include: (1) 150 large
direct-billing relationships (for a 76% targeted market share of
the nations billers), (2) 200 other billing relationships via
third parties such as EDS and IBM, among others, (3) have
consumers signed up for at least two services, (4) generate
significant business to business EBPP revenue, (5) remit 70% of
bills electronically, and (6) produce sustainable 25% operating
margins. Our current forecast calls for operating margin of 5% in
2001 and is not forecast to reach 25% until 2006, thus if the
company comes anywhere close to its targets, there is substantial
upside to estimates and the stock price beyond our current
$43-$45 target.
Additional information available on request
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END OF NOTE
More to come, I'm sure.
Capt T. |
