>>What does NAP do?
National Processing, Inc. is a provider of merchant credit card processing. The Company operates through two wholly owned subsidiaries: Merchant Card Services and Corporate Outsourcing Solutions. Merchant Card Services authorizes, processes, and performs financial settlement of card transactions including credit, debit and electronic benefits transfer. Merchant Card Services provides services to virtually every industry that accepts cards for payment settlement and currently provides services to over 500,000 merchant locations primarily in the United States. Corporate Outsourcing Solutions provides a variety of financial and administrative processing solutions to large corporate customers, primarily in three industries: travel, healthcare and financial services. These solutions include financial settlement, image scanning, data capture, storage and retrieval, and value-added customer reporting.
biz.yahoo.com
Interesting article on the sector in general -
biz.yahoo.com
BusinessWeek Online
DAILY BRIEFING -- The Gold behind the Plastic
By Olga Kharif in New York
With retailers feeling the pinch of a cooling economy, shares of Concord EFS (NasdaqNM:CEFT) might have been expected to flag. Instead, the stock of the Memphis-based company, which processes electronic transactions made with plastic at gas stations, ATMs, and supermarkets, has risen to the $50 range. That's up more than 60% since September, when the stock was around $30.
Concord EFS isn't the only electronic-transaction processing company with a rising share price. Stock of First Data (NYSE:FDC), the credit-card processing heavyweight, rose to about $60 in the past month, up from less than $40 in October. Shares of National Processing (NYSE:NAP), another large credit-card transactions processor, have doubled since last August to nearly $20. And eFunds (NasdaqNM:EFDS), one of the smaller players, saw its shares more than triple, from $6 in October to almost $19 in recent weeks. What gives?
RECESSION-PROOF. Amid the economic gloom, the use of plastic -- debit cards especially -- keeps going up. For ETPCs that get paid on a per transaction basis, that's a boon. And it explains why shares in processing companies have not been hit like credit-card company stocks, which investors have punished over fears of increased customer defaults.
Add to this the recession-proof nature of the ETPC biz -- people will continue to buy gas and groceries no matter what -- and it's clear why investors are ``rushing into payment processing companies. These outfits are stable and predictable. Valuations are reasonable, and the growth is healthy,'' says Gregory Gould, an analyst with Goldman Sachs.
Make that very healthy. Last year, the big four ETPCs bagged $7.8 billion in revenues. That could soar to more than $16 billion by the end of the decade due to sharp increases in the number of transactions processed. In 1999, ETPCs handled $1.5 trillion worth of transactions. That should balloon to $5.6 trillion by 2010, says Anthony Davis, an analyst with UBS Warburg. Davis claims that the percentage of transactions done with plastic will rise from 30% today to 65% by decade's end.
With increased usage will come revenue jumps for ETPCs averaging 10% annually for the next 10 years, according to Pedro Bernal, an analyst with Wachovia Securities. Aside from skyrocketing transactions, ETPCs will benefit from price protection built into the 3-to-10-year per transaction pricing contracts they have signed with big retailers such as Wal-Mart (WMT). That's the kind of stability that warms Wall Street's heart. And stable pricing plus rapid growth seems a pipe dream these days. But that's exactly what ETPCs are expected to deliver.
FASTER HORSE. A hefty chunk of that growth will come from Web shopping. According to e-consultancy Jupiter Research, over the holiday season of 2000 shoppers spent $10.8 billion online. That's 54% more than the year before, and about 98% of transactions on the Internet are paid with credit cards. That makes ETPCs a safer way to capitalize on the growth of the Web. ``The investment community has realized a better way to play e-commerce on the Internet is to go back to the established companies,'' says UBS's Davis.
But while both credit- and debit-card transactions will grow nicely, debit-card transaction growth is the faster horse. Credit-card transactions are growing at 7% to 10% per year. Debit cards will grow at about 20% per year for the next decade, says Wachovia's Bernal. According to a Salomon Smith Barney study, debit transactions will account for more than half of ETPC processing by 2010. That's significantly up from 25% today.
The trend plays into the hands of Concord, which owns 55% of the debit-card processing market, thanks to some smart acquisitions. On Feb. 1, Concord completed an deal worth approximately $1.1 billion to buy ATM services network Star Systems. The buy gave Concord control of a system with 18 million cardholders using 136,000 ATMs in 22 states. ``They can now capture more revenues at the point of sale,'' says Gary F. Prestopino, analyst with Barrington Research Associates.
``SAFE REPOSITORIES.'' But Concord could soon face heavy competition. Credit-card processing giant First Data recently decided to plunge into debit-card processing. And the market gave Concord a scare by sending the stock down 12% in two days after the company announced on Mar. 29 it would eliminate about 10% of its workforce and take a one-time charge of $75 million to $90 million. Concord executives said both actions come in conjunction with integration plans for Star Systems.
But Concord Chief Financial Officer Edward T. Haslam says the company still hopes to meet its earnings goals for the year. And for analysts, the outlook for the company hasn't changed. ``This is one of the safe repositories,'' says UBS's Davis.
In fact, all of the big four look strong to analysts. None has anything less than a buy rating, and many analysts rate Concord a strong buy. The payments powerhouse posted earnings of 88 cents per share last year but is expected to reach $1.17 per share in 2001, up 33%. First Data had earnings of $2.14 last year and is expecting $2.48 this year, up 16%. According to First Call surveys, earnings for eFunds will nearly triple from 31 cents per share in fiscal 2000 to 85 cents in fiscal 2001. And National Processing had earnings of 96 cents per share last year and says it will hit $1.11 this year, an increase of 16%.
``We are ''an island of stability amidst all this uncertainty,`` says eFunds Chief Financial Officer Paul Bristow. With Nasdaq's waters still roiling, investors might want to consider setting sail for that island. |
