Morningstar | Strong Growth and Acquisitions Mark Global Payments’ Third Quarter
In our view, Global Payments third-quarter results are emblematic of what we expect from the company going forward, seeing strong growth and folding in two acquisitions that deepen its capabilities and position the company to maintain its narrow moat in an evolving market. We will maintain our $123 fair value estimate.Adjusted revenue was up 12% year over year, despite some currency headwinds. Growth was led by the North America region, which grew 13% year over year despite soft results in Canada. Both Europe and Asia-Pacific saw 10% growth year over year, with both regions' results negatively impacted by currency. Going forward, we continue to believe that Asia-Pacific can achieve stronger growth than the other regions and provide a bit of a boost to overall growth. We think that management’s diligence in building out foreign operations will pay dividends over time, as growth in electronic payments shifts to emerging markets.
We think the quarter provides additional indications that Global Payments is positioned to maintain its competitive advantage in the face of an evolving acquiring market. The recently announced SICOM acquisition will strengthen the company’s offerings in the restaurant vertical, one of the verticals in which Global Payments offers its own integrated offerings. Management expects technology-enabled sales to account for 45% of revenue in 2019, and its e-commerce offerings grew at a high-teens rate in the quarter, ahead of the target management had previously laid out. We think Global Payments has the assets it needs as the market shifts toward integrated technology and omnichannel offerings.
Adjusted operating margins improved to 33.0% from 31.8% last year. We think the company’s recent investments and the scalable nature of the business will allow for meaningful margin improvement over time, but the pace this quarter was a bit ahead of our long-term expectations.
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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