From the Yahoo Thread, initial comments from Inst. Conference..
Feedback: Institutional Conference PART I newtockfr
(M/Atlanta, GA) Sep 4 1998
9:54AM EDT
Part I
I'm sure Benny will have his own report soon enough, until then, I'll grab some of the analyst highlights and post them throughout the day. J.C.Braford & Co (who?<g>)appears below.
Summary
CheckFree's third annual analyst conference was held in Atlanta, Georgia, yesterday with presentations by virtually all of the senior management team as well as industry participants and was attended by about 50 buy- and sell-side analysts/PMs. The meeting ran all day, concluded with about 90 minutes of Q&A and then dinner with management. The take-away impressions are these: (1) Web-based home banking is here now on a limited basis and will be widely available within nine-12 months. There are 30 million households now on the Internet; (2) Billers and banks are embracing electronic bill presentment and payment (EBPP) to develop closer ties with their customers. Billers will absolutely be pushing banks to stimulate demand; (3) If banks are too slow in embracing EBPP, other financial institutions such as brokerages or even Web Portals will fill the vacuum; and (4) CheckFree has the assets and market positioning to defend its leading presence.
We adamantly believe the market has dramatically overreacted to CheckFree's recent earnings guidance revisions, and that in fact visibility is probably better today than at any time in the company's history. We strongly urge investors to take a hard look at CKFR at the current price, and we reaffirm our Strong Buy rating.
Discussion
AT&T and Wells Fargo representatives spoke about the importance of developing on-line interactive relationships with consumers. Web-based EBPP creates the opportunity to cross-sell new services, lower customer-service costs and most importantly improve ties and lower customer attrition. Internet access has spread to 30 million households, and 75% have indicated an interest in using home banking services. AT&T believes billers will act as an accelerating force, pushing FI's to adopt electronic bill presentment capabilities and both companies see the future in the thin client aggregation model sponsored by CheckFree. If banks are too slow to adapt, CheckFree made it clear that they are FI agnostic. They will work with whomever the consumer wants as their aggregator.
Probably the most defensible aspects of CheckFree's business model are the end-to-end customer service and what they call "messyware," or the attention-intensive processing and customer- service components of the EBPP service offering. The 1,200 dedicated CheckFree employees have tremendous cumulative service experience that cannot be readily duplicated. Network management, remittance connectivity, payment, and related issues are time consuming and difficult to execute with precision. Slick software will not replace the service component of this business now or any time in the foreseeable future. CheckFree's messyware expertise and its positioning between FIs and billers is a significant competitive advantage. Genesis processing platform is operational and is ready add subscribers as fast as FIs and billers are able to deliver them.
The primary reason for the company's recent estimate revisions was the increased pace of bank migration to Web-based EBPP offerings and the interim slowdown of so called thick client deployment, but we believe this development will stimulate growth going into fiscal 2000. CheckFree reaffirmed its expectation that eight of its top 10 banks will be aggressively marketing Web- based home banking by June 1999 and 75% of 75 clients expect to have Web-based solutions available by then. As well, at least 25 of the countries top 150 billers, and likely 2x-3x that many, will be offering bill presentment through these FIs at that time.
The market has driven CKFR down to levels that suggest this industry may not develop, at least in our lifetime, but CheckFree's electronic commerce revenue did grow 50% last fiscal year and is forecast to grow 23% during this transitional year; a year when the majority of sizable FIs are launching Web services. We believe growth will reaccelerate in 2000 and are initiating an EPS estimate of $0.55, which could prove low by $0.10-$0.15 if consumer adoption rates of Web-based EBPP are as robust as this analyst and other industry participants believe. CheckFree's leadership position with banks, other FIs and billers is very defensible. The company provides an integral service that will not be circumvented by slick software. This stock may be dead money for a quarter or two, but as this fiscal year unfolds we believe the stock will move back towards previous highs seen just a few months ago.
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And Furman Selz says..... newtockfr
(M/Atlanta, GA) Sep 4 1998
10:17AM EDT
(Hey did anyone report on the departure of MSFDC's COO? Read below.
* Bank customers in process of rolling out Web-based online banking offerings
* Wells Fargo presentation highlights potential benefits of well executed home
banking strategy
* Establishing early lead in capturing large share of bill presentment volume
in key verticals
* See no significant upside for shares for near-term - outside of a takeout.
Details
Encouraging Web Introduction Time-Frames - Checkfree management sees 8 of its top 10 largest banks "aggressively" promoting web-based services and 75% of its top 75 financials institutions to have Web banking offerings by June '99.
If banks keep to such a timeline, it would imply a significant pick-up in subscriber growth, which is currently running around a 2-year low rate of 4% on a quarterly basis. Still, several of Checkfree's largest bank customers are in the process of merging and most all banks are focusing heavily on Y2K compliance. These factors have some potential to stretch out timelines.
Wells Fargo's Experience Highlights Strength of Consumer Demand -- Research sponsored by Wells Fargo found that 70% of PC owners want to try online banking while only 5% already bank online. Well's Executive Vice President, Dudley Nigg, explained that the bank has been surprised by the intensity of demand for its Web based platform. The bank had 300 thousand online subs at the end of '97, is at 500 thousand currently and sees 700 thousand customers by the end of '98.
Importantly, Wells' servicing costs (over a one-year time-frame) are dropping by approximately 17% when a customer goes online. Its online customers are more profitable than branch users, staying with the bank longer and loyalty is higher for bill payment users versus online bank only users. In our opinion, Wells' experience is indicative of the strong intermediate/long-term potential of web-based banking/bill payment/presentment.
Progress on E-Bill Front -- Including Southern California Edison (the second largest public utility in the country), announced Wednesday, Checkfree has signed 2 of the top10 and 8 of the top 25 billers. Out of 24 in total, 15 are in production. Checkfree is now positioned to capture 56% of all bill volume in the telecom market, 14% of the credit card market, 7% of the utility market and 8% of the mortgage services market. Several more top biller wins should be announced in the coming weeks/months.
Genesis Migration Update -- From a customer service/operations standpoint, it is quite important that the migration of the banks off old platforms (Columbus, Chicago, Austin) to Genesis go smoothly. In fact, Checkfree has temporarily hired networking consultants to help in the process. The first bank migration will occur this month and all banks are expect to be up on Genesis over the next 12-18 months.
Key Departure at MSFDC -- The competing MSFDC joint venture has not made any significant financial institution or biller announcements recently. We note, however, that Chuck White, First Data's Chief Operating Officer, for the MSFDC JV resigned recently. They have said that a full pay-anyone platform could be rolled out by year-end. However, this was supposed to occur this summer.
Integrion Picking Up Pace -- IBM has made some management changes to help accelerate IFS development. Lou Gerstner has appointed a senior executive to focus fully on the Integrion-IFS program. BancOne is now live on IFS and eight other banks are currently on the IFS schedule.
Share Probably in Holding Pattern, Near-Term -- Despite the inexpensive valuation of the shares, we do not see any significant, sustainable upside until it becomes clearer that bank web roll-out schedules will hold (i.e. the leading indicator for faster sub growth) and Genesis migrations are running smoothly.
We carry a Buy rating on Checkfree shares.
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