Company ProfileÂ (excerpt from Reuters): Total System Services, Inc. (TSYS), incorporated on December 22, 1982, is a payment solutions provider that provides payment processing services, merchant services and related payment services to financial and non-financial institutions. The Company’s segments include North America Services, Merchant Services, NetSpend and International Services. In addition, it provides general purpose reloadable (GPR) prepaid and payroll cards, and alternative financial service solutions to the underbanked and other consumers. The Company’s Merchant Services segment provides third party processing services to merchant acquirers and Independent Sales Organizations (ISOs) and financial institutions. The Company’s NetSpend segment is engaged in the provision and sale of prepaid access devices, such as its GPR prepaid debit cards.
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSS – December 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$16,044,737,508||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.57||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||157.28%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||31.74||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||5.98||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.57||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||5.24||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||14.10%|
|MG Value based on 3% Growth||$39.24|
|MG Value based on 0% Growth||$23.00|
|Market Implied Growth Rate||11.62%|
|% of Intrinsic Value||86.47%|
Total System Services, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.39 in 2014 to an estimated $2.71 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 11.62% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.
At the time of valuation, further research into Total System Services, Inc. revealed the company was trading above its Graham Number of $30.87. The company pays a dividend of $0.46 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 31.74, which was above the industry average of 20.05. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.76.
Total System Services, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$19.76|
|Number of Consecutive Years of Dividend Growth||1|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2018|
|Total Current Assets||$1,199,917,000|
|Total Current Liabilities||$467,171,000|
|Shares Outstanding (Diluted Average)||183,846,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$3.42|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.71|
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
Leave a Reply