I have so many problems with "Crafty's" report (see below) that I can't even begin to delve into it (the least of which is I can't distinguish if he's writing about CKFR or Princeton Telecom).
I figured I'd just throw it out on the thread and let the chips fall (in any event, I'm severely "under the weather" after Holiday party #2 last night)
Regards, and a good weekend to all -- RK
CKFR: Update on CheckFree's Growing Need For Bill Content
02:39pm EST 17-Dec-98 BancBoston Robertson Stephens (Craft, Gary
415-248-4202)
December 17, 1998
C H E C K F R E E H O L D I N G S C O R P .
Update on CheckFree's Growing Need For Bill Content
Gary R. Craft, CFA (415) 248-4202 gary_craft@rsco.com
BancBoston Robertson Stephens
CHECKFREE CORP CKFR $18.50 12/17/98
Industry: Information Services
Change in.. Yes/No Was Is Gary R. Craft, C.F.A 248-4202
Rating: No MP gary_craft@rsco.com
EPS 1996A: NM Bryan C. Keane 693-3519
EPS 1997A: ($0.44) bryan_keane@rsco.com
EPS 1998E: No ($0.10) FY June 1996A * 1997A 1998A
1999E
EPS 1999E: No $0.12 EPS: 1Q NM ($0.19)
($0.06)($0.05)
2Q NM ($0.13) ($0.03)
52-Week Range: 31.43-8.25 3Q NM ($0.10) $0.00
Shrs Out(MM): 55.51 4Q NM ($0.07) $0.03
Mkt. Cap. (MM) $1,026.9 Year NM ($0.44) ($0.06)
$0.12
Avg Daily Vol (000) 645.0 P/E na na na
154.2x
9/98 Bk Val/Shr: $3.22 Cal Yr NM ($0.26) ($0.02)
$0.39
9/98 Tot. dbt / cap: 0.0% CalYr P/E na na na
47.4x
F1998 ROE NA Revs:
Price/Bk Value: 5.7x ($MMs) 1996A * 1997A 1998A
1999E
9/98 Net Cash/Shr: $0.52 1Q NM $32.7 $52.1
$56.8
Div/Yld: Nil 2Q NM $38.5 $56.5
3-Yr Sec Grwth Rt: NA 3Q NM $50.2 $61.7
4Q NM $55.1 $63.5
Year NM $176.4 $233.8
$260.0
Mkt. Cap/ Re na 5.8x 4.4x
3.9x
* Checkfree changed its fiscal year in 1996 from December to June.
Key Points:
** Growing success of bill publisher/concentrator Princeton Telecom likely to lead Checkfree into a strategic partnership for bill content.
** Checkfree facing an onslaught of growing information service competition including: Intuit, Transpoint, potentially Yahoo and AOL, as well as biller sites and potentially employer sites.
** We now fully appreciate Checkfree's clarion call to the banking
industry:
either enroll home banking customers quickly or some other Internet information service provider will.
** Princeton Telecom's proven publishing/payment/concentration technology reinforces the notion that payment follows the bill and home banking can now easily be done away from bank partners where Checkfree has placed its bets.
** Maintaining our Market Performer rating pending evidence that
Checkfree's partners can be successful in this exciting land grab for home banking/bill presentment.
INVESTMENT UPDATE
Based on the growing success of Princeton Telecom in the exciting arena of electronic bill presentment, we think it is only a matter of time before Checkfree forges some partnership with this private company. As we see it,Checkfree is increasingly taking a front end role in bill payment and presentment and needs content -- read: bills -- to increase the attractiveness of its service offering. Princeton appears to be the up and coming bill publisher based on its integrated role of bill publishing and lockbox concentration (i.e., payment information services for the biller). To be sure,we see Princeton beginning to build cornestone biller relationships in dense geographic markets like New England/New York (including its recent win of GPU
Energy in Pennsylvania/New Jersey) and southern California where Checkfree provides home banking services. So, Checkfree can ill afford not contracting with Princeton Telecom when Princeton controls valuable billing content in markets that matter to large Checkfree customers like Chase Manhattan, in our opinion.
The Princeton Telecom publishing/payment model is also fully integrated from biller file, to presenter including not only Checkfree, but Transpoint or Intuit, through to accounts receivables querying against the all important biller file. Princeton not only moves the information about payment, but also the payment itself. This is a significant issue as we see it given the payment intensive nature of home banking services like Checkfree's.
Can Checkfree survive in a world where bills drive payment and its success in reaching billers through primary bill publishing/lockbox concentration has proven elusive?
The answer we believe is yes, as long as it continues to charge banks
monthly fees for hosting customers at the Checkfree site and billers a toll for reaching customers at its site. Thus, John Doe's bank may continue paying Checkfree $3-$4 month for hosting, and John Doe's billers $0.20-$0.35 per bill.
The only point worth mentioning here is this: Princeton Telecom's model can find John Doe wherever he is enrolled -- be it Checkfree, Intuit, Transpoint, AOL or Yahoo, a stand alone bank or even a biller or employer Web site. This is the flexibility of the Princeton Telecom service model.
It becomes increasingly incumbent on Checkfree and its banking partners to forge aggressive land grab strategies and beat these competitors to John Doe.
John, after all, will not want to enroll in multiple sites for bill
presentment and payment. It is this risk that we believe caused Checkfree to criticise bank lethargy in home banking enrollment. Home banking today is not what it was before the Internet and bill presentment arrived. If the banks don't enroll home banking customers, quickly then someone like Intuit or Yahoo is likely to
fill that void. And this, as we see it, is the biggest risk to Checkfree.(We see only one non-Checkfree bank Citicorp acting aggressively using bounties for home banking customers but this is an exception vs rule within the industry.)
For this reason, we are maintaining our Market Performer rating pending further evidence on how the competitors respond and how quickly Checkfree's banks can increase subscriber count.
WHAT THE COMPANY DOES? Checkfree is located in Norcross, Georgia, and is the market leader in electronic bill payment and presentment. In light of its 15 years of operating experience, it has developed an estimated market share of 70%, a share we expect to continue increasing. It represents a play on home banking transactions from both the consumer and small business sides of the market. General industry forecasts call for rapid increases in home banking
transactions from 200 million transactions currently to more than 1.4
trillion by the end of 2000. Of the 200 million transactions processed in 1995, we believe about 70 million (40%) were processed through Checkfree. Its market share has grown through the acquisition of Intuit Services Corp. and continued success increasing its bank feeder system. It is also a leading participant in the emerging electronic bill presentment market, where it matches bills with
consumers through its service bureau managed on behalf of banks.
Across 15 billion recurring bill payments annually, we believe Checkfree's addressable market to be $1.5 billion or more.
Checkfree operates in three separate industry segments: Retail Services, Business Services and Investment Services. We believe the driver of the future growth is Retail Services, or home banking, where Checkfree is arguably the most visible industry participant. However, its Business Services unit is anticipated to benefit from growing electronic banking activity among small-and mid-sized businesses. And, its Investment Services division complements the other two through brokerage transaction processing expertise.
INVESTMENT RISKS: Among the risks are the early stage in Checkfree's
business development, a history of operating losses and the potential for billers to migrate to direct bill presentment and sidestep Checkfree's service bureau model.
BancBoston Robertson Stephens maintains a market in the shares of Checkfree Corporation, Intuit, Yahoo! and has been a managing or comanaging underwriter for or has privately placed securities of Intuit Corporation within the past three years.
For additional information call your BancBoston Robertson Stephens
representative at 415 781-9700.
Unless otherwise noted, stocks priced intraday Thursday, December 17, 1998.
The information contained herein is not a complete analysis of every
material fact respecting any company, industry or security. Although opinions and estimates expressed herein reflect the current judgment of BancBoston Robertson Stephens, the information upon which such opinions and estimates are based is not necessarily updated on a regular basis; when it is, the date of the change in estimate will be noted. In addition, opinions and estimates are subject to change without notice. This Report contains forward-looking statements,
which involve risks and uncertainties. Actual results may differ significantly from the results described in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Investment Risks." BancBoston Robertson Stephens from time to time performs corporate finance or other services for some companies described herein and may
occasionally possess material, nonpublic information regarding such
companies. This information is not used in the preparation of the opinions and estimates herein. While the information contained in this Report and the opinions contained herein are based on sources believed to be reliable, BancBoston Robertson Stephens has not independently verified the facts, assumptions and estimates contained in this Report. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the
fairness, accuracy, completeness or correctness of the information and
opinions contained in this Report. BancBoston Robertson Stephens, its managing directors, its affiliates, and/or its employees may have an interest in the securities of the issue(s) described and may make purchases or sales while this report is in circulation. BancBoston Robertson Stephens International Ltd. is regulated by the Securities and Futures Authority in the United Kingdom.
This publication is not meant for private customers.
The securities discussed herein are not FDIC insured, are not deposits or other obligations or guarantees of BankBoston N.A., and are subject to investment risk, including possible loss of any principal amount invested.
Copyright 1998 BancBoston Robertson Stephens Inc.
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
FCviaNewsEDGE
BROKER: Robertson Stephens & Co.
:TICKER: CKFR
:SUBJECT: HARD CONW USA
Copyright (c) 1998 First Call Research Notes
Received by NewsEDGE/LAN: 12/17/98 2:42 PM
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