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Global Payments Company (NYSE: GPNMizuho Securities wrote in a recent note that the company’s shares are changing hands near a 52-week low as investors “debate around potential organic growth and potential share losses in the commercial acquiring business.”
But the payments technology company has Analyst Dan Dolev believes that if some programs are implemented, it may help to reverse the negative sentiment.
“Our combined analysis suggests that the combination of a potential sale of the Merchant Solutions business and a spin-off of the issuer could unlock approximately 30% of value,” he said.
Specifically, the report said GPN’s issuer processing business is estimated to be worth $40-$45 per share on a stand-alone, unlevered basis. Offloading the struggling point-of-sale (“POS”) business could result in an additional $145-$150 per share in value (unlevered), or a total GPN per share value of $125 when factoring in $62 per share in net debt -$130.
Merchant Solutions’ adjusted operating income in the first quarter was $790.4 million, down from $797.3 million in the previous quarter and up from $688.3 million in the same period last year. Issuer Solutions first-quarter adjusted operating income was $241.4 million, down from $251 million in the fourth quarter of 2023 and up from $215.2 million in the first quarter of 2023.
Dolev noted that the Merchant unit’s continued currency revenue growth (excluding EVO and disposals) has lagged that of main rival Fiserv (FI) since 2019.
“The main reason for the slowdown in growth may be GPN’s lack of branded POS solutions,” the analyst said. Branded products such as Fiserv (FI), Toast (TOST) and Block (SQ) have achieved share growth in the North American POS industry. “Given the fierce competition, GPN has been working hard to defend market share and win new merchants organically, as disruptive technologies from peers accelerate the replacement of traditional GPN systems.”
Unlike Merchant, whose GPN is losing market share, its issuer processing unit has been performing strongly, with solid mid-single-digit core growth and room for expansion. Dolev said the unit represents 20%-25% of the total $8B-$9B addressable market and “has the opportunity to double TAM through the expansion of products such as fraud and risk management, digital and commercial payments.”
Dolev believes the market may reward Global Payments (GPN) if it decides to spin off its POS business. Recall last year, rival Fidelity National Information Services (FIS) sold a majority stake in its business solutions business Worldpay after acquiring it for about $35B in 2019. %.
Meanwhile, GPN stock has underperformed its peers and the market. Dolev, who has a neutral rating on GPN, said that over the past five years, GPN has fallen 37% while the S&P 500 has gained 89% and Legacy Payments Group has gained 16%.
