First Union Securities Covers CKFR
03/14/01 09:10 AM
Source: First Union Securities
Morning Notes:
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CheckFree Holdings Corporation (CKFR-NASDAQ)
Company Note
CKFR: New Features Deliver More Value To Banks
Rating: 3
Price: $44.38
52-Wk. Rng.: $95-29
Shares Out.: (MM) 76.2
Market Cap.: (MM) 3,383.6
Key Points
CheckFree debuted Webpay 3.2 with person-to-person payments and bill delivery/payment through e-mail.
No additional cost to financial institutions for these new features and no incremental revenue to CheckFree on a per subscriber or per transaction basis so we expect rapid acceptance by CheckFree customers and are not changing our CheckFree revenue model.
These services should deliver more value to CheckFree™s bank customer base and if the new features (particularly the P2P payments) become widely used by consumers, it likely will further cement CheckFree™s position as an outsourced bill payment/presentment service provider.
Continue to rate the shares Market Perform because the stock appears expensive at 42x our CY2002 EBITDA estimate of $86 million and 160x our CY2002 EPS estimate of $0.27.
Company Description
CheckFree Corporation is the leading resource for online bill presentment and payment. CheckFree has released the latest version of its bill payment/presentment application ... Webpay 3.2. The upgrade includes two important pieces of additional functionality for financial institutions: person- to-person payments and bill delivery/payment through e-mail. There is no additional cost to financial institutions for these new features so we expect rapid upgrade to the newest release and we are not changing our CheckFree revenue model. These services should deliver more value to CheckFree™s bank customer base and if the new features (particularly the P2P payments) become widely used by consumers, it should further cement CheckFree™s position as an outsourced bill payment/presentment service provider.
We continue to rate CheckFree shares Market Perform because we feel that CheckFree™s closed electronic bill presentment and payment network is still very expensive for banks and billers. Consumers appear unwilling to pay for the service and transaction costs today (measured by CheckFree™s revenue per transaction) still exceed $1.25 per transaction. We feel CheckFree™s longer term model must include much higher subscribers and transactions and much lower costs per transaction. With these assumptions, the stock still appears expensive at 42x our CY2002 EBITDA estimate of $86 million and 160x our CY2002 EPS estimate of $0.27.
THERE ARE TWO IMPORTANT UPGRADES OF FUNCTIONALITY. CheckFree™s new WebPay 3.2 release has two important new pieces of functionality for banks and portals to offer to their bill paying customers. First, CheckFree has incorporated person-to-person e-mail payments. Consumers can e-mail a payment to anyone that has an account at a bank that is also on CheckFree™s platform. Second, bills can be delivered and paid via e-mail adding a layer of convenience for the end consumer. Billing via e-mail should be available this summer. While both features add an important layer of value for consumers, we doubt that either iitake-offle in adoption. Very few consumers are doing any electronic bill presentment and will probably walk (bills presented at bank or biller site) before they run (bills in email). In P2P payments, CheckFree™s ability to link many banks is compelling, but early P2P adapters (auction payments) are probably already using Paypal and mass adoption/usage is probably a long way off.
THERE IS NO INCREMENTAL REVENUE TO CHECKFREE FOR THIS UPGRADE. Per subscriber fees and per transaction fees will not change as financial institutions upgrade to the new CheckFree release and consequently we anticipate no changes to our revenue model. With the new features, CheckFree is increasing its value proposition to the financial institution -- giving them more for their money. They longer-term key here would appear to be whether CheckFree can deliver the incremental features without incremental costs. Because we think the adoption rate and usage of these features will be gradual, we think there will be relatively seamless integration into CheckFree™s service infrastructure.
Additional information available upon request.
First Union Securities, Inc. maintains a market in the common stock of CKFR.
This is for your information only and is not an offer to sell, or a solicitation of an offer to buy, the securities or instruments mentioned. Interested parties are advised to contact the entity they deal with, or the entity that has distributed this report to them. The information has been obtained or derived from sources believed by us to be reliable, but we do not represent that it is accurate or complete. Any opinions or estimates contained in this information constitute our judgement as of this date and are subject to change without notice. First Union Securities, Inc. (icFUSIle), or its affiliates may provide advice or may from time to time acquire, hold or sell a position in the securities mentioned herein. FUSI is a subsidiary of First Union Corporation and is a member of the NYSE, NASD and SIPC. Copyright © 2001 First Union Securities, Inc. FUSI is a separate and distinct entity from its affiliated banks and thrifts. |
