RHI



June 15, 2007

Research Associate: Shradha Poddar

Editor: Sweta Killa, M. Fin.

Sr. Ed.: Ian Madsen, CFA; imadsen@; 1-800-767-3771, x9417

111 N. Canal Street, Suite 1101 ● Chicago, IL 60606

| Global Payments (GPN - N) |$41.18 |

Note: All new or revised material since the last report is highlighted.

Reason for Report: Minor Changes in Estimates Previous Edition: April 18, 2007

Recent Events

On May 31, 2007, GPN paid a quarterly dividend of $0.02 per share, to shareholders of record as of May 17, 2007.

On March 30, 2007, GPN announced its 3Q07 earnings. Highlights are as follows:

• Total revenue increased to $260.4 million compared to $225.2 million in 3Q06.

• EPS was $0.42 compared to $0.36 in 3Q06.

Overview

Analysts have identified the following factors for evaluating the investment merits of GPN:

|Key Positive Arguments |Key Negative Arguments |

|Dominant Payment Processors: GPN is one of the industry’s best-managed and |Competitive pricing pressure: GPN faces price competition in markets, |

|best-positioned companies. It is likely to benefit from its aggressive |especially in Latin America. |

|efforts to penetrate emerging payments markets in Central and Eastern Europe|Slowing Economy: Decline in consumer spending and confidence could |

|as well as in Asia-Pacific. |result in fewer business transactions and more business failures. |

|Joint Venture: GPN has entered into a joint venture with a major Asian |Immigration Reforms: New immigration issues will have a negative impact |

|multinational bank, which would provide it with exposure to 10 Asia-Pacific |on GPN’s money transfer business. |

|countries. |Foreign Exchange Risk: GPN’s expansion into the international business |

|Leverageable Infrastructure: The company has built proprietary IT system in|exposes it to foreign exchange risk. |

|its own business and its major acquisitions (including Muzo and Dolex). |Client Base Consolidation: GPN may be negatively impacted by mergers and|

|Strong Domestic Sales Momentum: The card business is expected to reach $3.7|acquisitions in its banking client base, which might lead to fewer growth|

|trillion in 2010 and GPN has enjoyed solid momentum notably through the ISO |prospects and cause clients to move away from GPN as a sole service |

|business, and direct sales to certified application providers. |provider. |

GPN’s Fiscal Year ends on May 31.

Based in Atlanta, Georgia, Global Payments Inc (GPN) is a leading international transaction processor. Being the sixth largest in the United States and the largest in Canada it processes billions of business and consumer transactions annually through an electronic information network. GPN provides two main services to merchants, independent sales organizations (ISO), multinational corporations, financial institutions, consumers, and government agencies – merchant acquiring processing and money transfer services. Its merchant service offerings provide merchants and financial institutions with credit and debit card transaction processing, check services, and terminal management. Its money transfer offerings include consumer-to-consumer and business-to-business money transfer, and financial electronic data interchange, as well as account balance, management information, and deposit reporting. GPN operates in the United States, Canada, Europe, Latin America, Morocco, and the Philippines and completed a joint venture with a major Asian multinational bank – The Hong Kong and Shanghai Banking Corporation Limited – to enter 10 emerging Asian markets. For more information, please go to .

Revenue

Both the company and Zacks Research Digest reported 3Q07 total revenue of $260.4 million, up 15.7% y-o-y. The upside was primarily led by strong performance from the merchant processing division in Canada. However, one firm (FTN Midwest Res.) believes the revenue was lower than in previous years because of the investment in international business, and continued increase of merchants in the ISO distribution channel.

Provided below is a summary of revenue as compiled by Zacks Digest:

|($ in Millions) |

|Positive |71.0% |

|Neutral |29.0% |

|Negative |0.0% |

|Avg. Target Price |$45.27↓ |

|Analysts with target price/total |13/21 |

The key risks to achieve the target price includes deteriorating Money Transfer profitability, rising pricing competition, the evolving structure of international payments markets, and the identification, valuation, execution and integration of acquisitions.

Please refer to the Zacks Research Digest spreadsheet on GPN for further details on valuation.

Capital Structure/Solvency/Cash Flow/Governance/Other

The company ended 3Q07 with $292.0 million in cash, up from $249.0 million in 2Q07. Cash generation continues to be very strong, and one firm (Morgan Keegan) believes the company continues to be well positioned to access additional capital beyond the company's current $350.0 million credit facility, if needed, to finance future growth opportunities. Further, the firm believes GPN is primarily focused on deploying its cash through acquisitions, although a modest share buyback is also likely in the future.

On November 17, 2006, GPN announced the completion of a five-year, $350.0 million revolving credit facility agreement with a syndicate of financial institutions. The facility expires in November 2011 and has a variable interest rate based on a market short-term floating rate plus a margin that varies according to the company’s leverage position. In addition, the agreement allows the company to expand the facility size to $700.0 million by requesting additional commitments from existing or new lenders.

One firm (Wachovia) expects the company to look for acquisition opportunities that would complement its international growth strategy (within the Asia-Pacific and Central European regions), and money transfer businesses (Dolex and Europhil). International acquisitions will probably be small card portfolios and regional processors, in the firm’s opinion. It believes the Single European Payment Area (SEPA) initiative could create an acquisition opportunity for the company, as regional banks, which acquire and process debit card transactions within these Euro Zone countries opt to sell rather than commit large sums of capital in order to become compliant. Management feels the current M&A environment for these assets is rich, but the firm believes the company could be opportunistic for a compelling deal that might improve its competitive position.

Global Payments Asia Pacific Limited JV

GPN has completed its joint venture with the Hong Kong and Shanghai Banking Corporation Limited bank. GPN paid $67.8 million for a 56.0% ownership in the joint venture for credit and debit processing services in 10 Asia-Pacific countries that include over 45,000 merchant locations. Over a 4-year time period, GPN will integrate front- and back-end technology platforms for the joint venture, while in the near term becoming very pro-active in marketing efforts to small- and mid-tier merchants in the 10 Asia-Pacific countries of the joint venture. Positives anticipated from the joint venture are as follows:

• Growth – Management expects the JV to grow revenue in double digits over time, though this year it will likely be in the mid single digit. The majority of revenue is currently being generated from two of the more mature markets: Hong Kong and Taiwan. The company does not expect to be allowed to process Chinese domestic payments until at least 2008, due to restrictions set forth by the government on foreign business.

• Profitability – Management indicated the company will not initially focus on near-term profitability. The company is planning operational requirements to convert technical systems to a more efficient platform, focusing on both the front and back ends (initially on the back). The company has already removed some low-price, high-risk cards and believes substantial margin improvements will take approximately four years to develop.

• Competition – The JV is currently the leader in both Hong Kong and Taiwan, has a large presence in Singapore, and is the third-largest player in Malaysia. The company indicated opportunities are currently limited in India (ICICI is the market leader), though the country could present a large opportunity over time.

• Balance Sheet Impact – Management indicated that the only real impacts to the balance sheet will be a decline in cash and an increase in intangibles. The company also mentioned a $1.0–$.02 million impact to interest expense related to merchant pre-refunding (a common practice in Asia-Pacific).

• Potential Revenue and EPS Impact – The company believes the JV can generate $47.0–$51.0 million (translates into $55.0–$60.0 million of annual revenue) in revenue in FY07 at a margin in mid teens. The company expects a neutral EPS impact based on the potential profit, which will be offset by lost interest income on the $67.0 million paid.

One firm (R W. Baird) believes there are a number of factors in GPN’s model that could offset the near-term negative impact from the Asia Pacific Limited JV. These include cost savings from the ongoing consolidation of the company’s entire North American platform (people, systems, maintenance, hardware installations), new pricing initiatives in the Canadian merchants market, the pressure on networks (MA, Visa) to reduce interchange fees (favorable trend for the merchant processors) as well as the contribution to margins from the company’s US-based direct merchant processing operation, which is still in a build-up mode.

Potentially Severe Problems

There are none other than those discussed in other sections of this report.

Long-Term Growth

The long-term growth rates for GPN range from 11.0% to 22.0%, with the average being 15.7%.

GPN is the leading worldwide provider of merchant acquiring processing and money transfer services. The company has successfully grown and diversified its business beyond the North American merchant services market through a series of well-timed and executed acquisitions, while benefiting from strong ongoing organic revenue growth and significant operating leverage. The company will maintain a leadership position in its key markets, benefiting from its improved sales effort and excellent management. Its leadership position in merchant service acquiring in Central and Eastern Europe, coupled with its emerging Asia-Pacific presence, can potentially support above-average organic revenue and earnings growth in the foreseeable future. In addition, Global's impressive and burgeoning international money transfer franchise appears poised for strong expansion, as per the analysts.

One firm (William Blair) continues to believe the joint venture between the company and HSBC would provide merchant acquiring services across the Asia-Pacific region over a long term. However, expenses related to processing platform development and conversion, investment in building a sales force, and the predominance in the business of relatively mature markets will all negatively affect revenue growth and margin throughout FY08. Further, FY09 will prove to be a turning point for the joint venture’s contribution to growth and margins as HSBC might expand its footprint in the region and/or new partners may be added in the joint venture.

One firm (Fox Pitt) states though risks have increased in both money transfer and merchant services businesses, GPN would be able to grow its earnings 15.0%-16.0% p.a. over the long term.

Despite the lower-than-expected operating margin performance, analysts believe GPN is well positioned for long-term growth in both of its business segments (Money Transfer and Merchant Service) as 1) the small merchant and ISO channels offer fastest growth within the domestic merchant processing space, 2) the HSBC and MUZO JVs position the company for long-term growth in the emerging markets of the Asia-Pacific region and Central and Eastern Europe, 3) branch-based model in Latin America and Europe provides superior service in one of the largest markets within money transfer, and 4) its duopoly with Moneris allows for periodic re-pricing in Canada.

Upcoming Events

On June 30, 2007, GPN expects to announce its 4Q07 and FY07 earnings.

Individual Analyst Opinions

POSITIVE RATINGS

Barrington Res. – Outperform ($46.00 – target price) – 04/03/07: The firm upgraded the stock to Outperform and also raised the price target to $46.00.

AG Edwards – Buy ($45.00 – target price) – 06/15/07: The firm maintained a Buy rating with a price target of $45.00.

Fox Pitt – Outperform ($49.00 – target price) – 04/02/07: The firm maintained an Outperform rating but decreased the price target from $51.00 to $49.00. INVESTMENT SUMMARY: The firm remains positive on the U.S., European and Asian markets over the foreseeable future. In the U.S., it continues to expect growth of 12.0%-13.0% for the next several years. All the 3 markets would continue to benefit from the shift in payments to cards. While the GPN stock could trade between $33.00 and $39.00 over the near term (next 3-6 months), the firm expects the valuation to move higher by the end of FY09. Further, GPN’s joint venture with HSBC opens up processing opportunities in 10 countries including China and India.

Citigroup – Buy ($50.00 – target price) – 03/30/07: The firm decreased the target price from $51.00 to $50.00 but maintained a Buy rating to reflect GPN’s conservative guidance. INVESTMENT SUMMARY: GPN should benefit from its gaining market share in the United States combined with its push into emerging markets and new product lines (e.g., money transfer). Going forward, with a scalable business model, the increasing number of transactions would produce margin expansion and improved earnings leverage.

First Analysis – Overweight ($46.00 – target price) – 04/11/07.

FTN Midwest Res. – Buy ($42.00 – target price) -- 06/05/07: The firm maintained a Buy rating with a price target of $42.00. INVESTMENT SUMMARY: The firm believes that the current price of the stock is a great entry point for new investors looking to have exposure to both the merchant processing and money transfer industries. It anticipates the company’s earnings growth to continue as GPN executes on opportunities in both the domestic and international merchant processing markets, and evolving money transfer market. Moreover, the catalyst to drive this stock higher are: (1) strong fundamentals in its merchant processing business, (2) potential to improve margin, and (3) benefits from the HSBC joint venture.

J.P. Morgan – Overweight (no target price) – 05/31/07. INVESTMENT SUMMARY: The firm maintained an Overweight rating as it believes the tempered outlook is more than reflected in the stock at current levels and also views GPN’s potential for capital deployment (e.g., acquisitions or share repurchases) as a positive near-term catalyst. Also the firm remains bullish on the prospects of consolidation, new partner programs and the HSBC investment.

Janney Montgomery – Buy (no target price) – 04/02/07: The firm maintained a Buy rating.

Morgan Keegan – Outperform (no target price) – 04/02/07: The firm maintained an Outperform rating. INVESTMENT SUMMARY: The firm believes the Global Payments Asia Pacific Limited JV positions the company for solid long-term growth but opines near-term growth will be driven by domestic and Canadian operations.

Raymond James – Strong Buy ($46.00 - target price) – 05/03/07: The firm maintained a Strong Buy rating with a price target of $46.00. INVESTMENT SUMMARY: The firm believes the company has a pattern of exceeding consensus expectations particularly on gross margin and EPS, and thinks it will continue to be one of the sector’s best managed transaction processing firms. Further it anticipates that G2 (Atlanta processing center) would lower costs of running and maintaining platforms (the company has multiple legacy platforms in Atlanta, Canada, and Asia-Pacific).

R W. Baird – Outperform ($43.00 – target price) – 04/09/07: The firm maintained an Outperform rating and increased the price target from $40.00 to $43.00. The firm continues to recommend the purchase of GPN stock as it is encouraged by GPN’s repurchase authorization. INVESTMENT SUMMARY: According to the firm, GPN has established itself as a key player in the mid-to-small market with differentiated strategies in sales, product offerings, and partnerships with merchants.

Suntr. RH. – Buy (45.00– target price) – 04/02/07: The firm maintained a Buy rating but decreased the price target from $52.00 to $45.00 based on the conservative FY08 and FY09 estimates. INVESTMENT SUMMARY: The firm anticipates that GPN will maintain a leadership position in its key markets, benefiting from improved sales and excellent management. Moreover, the firm remains constructive regarding Global’s long-term organic revenue and profit growth prospects, in spite of the disappointing domestic merchant and money transfer financial performance. Further it remains fascinated by GPN’s international revenue growth potential, particularly in the emerging markets of Europe and Asia.

UnionBankSwitz. – Buy ($50.00-target price) – 03/30/07. INVESTMENT SUMMARY: The firm thinks the company will remain focused on accretive deals, which could help drive the shares higher over the next 12 months. Further, the firm believes that GPN has significant topline growth opportunities in Asia and Eastern Europe.

Wachovia – Outperform ($44.00-$47.00 – target price range) – 06/14/07. INVESTMENT SUMMARY: The firm views GPN as one of the premier companies in the payment processing industry, with a solid management team. The company has diversified its growth opportunities outside of pure merchant processing over the years, which the firm believes will not only have a positive long-term impact on its core organic growth rate but its margins as well. Its most recent venture with a major Asian multinational bank would give the company exposure to the Asia-Pacific market, which is expected to be accretive in the long term.

William Blair – Outperform (no target price) – 04/16/07: The firm upgraded the stock from Market perform to Outperform as the firm believes that GPN’s expectations are reasonable and achievable in the near term. INVESTMENT SUMMARY: The domestic merchant services business continues to mature. Overall, the firm believes that GPN can sustain high, single-digit to low, double-digit growth in its domestic business going forward.

NEUTRAL RATINGS

CIBC – Sector Performer (no target price): 06/15/07.

Goldman – Neutral ($43.00 – target price) – 04/01/07: The firm maintained a Neutral rating but decreased the price target price from $50.00 to $43.00 owing to increased risk to the estimates as growth and profitability in the company’s core domestic merchant processing business appear to be under pressure. INVESTMENT SUMMARY: Though the firm states GPN shares will eventually rebound, it cautions that it will take several quarters to better gauge the long-term growth potential and states that FY08 will prove to be a transition year for the company.

Merrill – Neutral (no target price) – 04/02/07

MorganStanley – Equal weight (no target price) – 04/02/07: The firm maintained an Equal weight rating given a challenging operating environment and limited visibility into the timing of new growth initiatives and cost containment programs. INVESTMENT SUMMARY: The firm views FY07 as a transition year for GPN as the company builds out its Asian business, grows over a sizeable customer loss in Central and Eastern Europe, and invests in long-term technology improvement initiatives. However, management expects revenue to grow in high single to low double digits in FY08.

Piper Jaffray – Market perform ($38.00 – target price) – 04/16/07: The firm downgraded the stock from Outperform to Market perform and decreased the price target from $50.00 to $38.00. The firm believes that GPN would continue to grow its money transfer business cautiously. However, GPN will look to make some acquisitions of strategic locations, which could serve as a growth engine to the segment over time. Moreover, going forward if margins do not improve, GPN might change its Money Transfer business model or consider a strategic alternative.

Thomas Weisel – Neutral (no target price) – 04/02/07: The firm maintained a Neutral rating. INVESTMENT SUMMARY: The firm continues to believe that the company has established a leading position in the mid-sized merchant market, and expects strong long-term benefits from the HSBC platform. However, it forecasts that slow domestic growth, ending of Canadian benefits and delayed Asian penetration will slow overall earnings growth.

NEGATIVE RATINGS

None at this time

COVERAGE CEASED

Lehman – 02/06/07– The firm dropped coverage on GPN.

Research Associate: Shradha Poddar

Copy Editor: Joyoti D

Content Ed.: Sweta Killa [pic][pic][pic]

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Zacks Research Digest

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