Morningstar | Global Payments Sees Solid Growth and Margin Improvement in 1Q
Global Payments maintained its momentum in the first quarter, with double-digit top-line growth and solid margin improvement. We continue to believe that the company is well positioned for an evolving acquiring market and that this will allow it to continue to benefit from the ongoing shift toward electronic payments. We will maintain our $131 fair value estimate and narrow moat rating.Top-line results were impressive, with adjusted revenue up 13% year over year. North America was the strongest performer on a reported basis, with 16% growth. This was partially aided by acquisitions, however; we estimate growth at about 9% excluding acquisitions and currency effects. This level is roughly in line with our long-term expectations and suggests that the company is managing the shift toward more integrated solutions without disruption.
Reported international results were held back by the strong dollar, but underlying results were good. Europe was up about 10% year over year excluding currency impacts, and Asia-Pacific was up 13% on the same basis. We continue to believe that Global Payments’ international operations will extend the company’s growth in the long term as growth in electronic payments shifts to less mature countries. Among leading acquirers, we think Global Payments is relatively well positioned on this front, given its long-standing and sizable international presence.
Adjusted operating margins improved to 31.5% from 30.4% last year. We believe that the scalable nature of the business and the company's solid growth will allow for sustainable margin improvement over time. This quarter actually ran ahead of our long-term expectations, although management’s guidance for full-year margin improvement is a bit more modest.
Global Payments is a pure play payment technology company providing payments and software solutions to merchants and financial institutions. The company has three segments: Merchant Solutions, which includes authorization services, chargeback resolution, and payment security services; Issuer Solutions, which provides solutions that enable financial institutions and other financial service providers to manage their card portfolios and reduces technical difficulty and overhead on a single platform; and Business and Consumer Solutions, which provides general purpose reloadable prepaid debit and payroll cards, demand deposit accounts and other financial service solutions through its Netspend? brand.
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