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Global Payments Inc. shares were on the rise in Thursday trading after the company topped earnings expectations and gave a more positive view of the synergies that could result from its Total System Services deal.
The company delivered third-quarter adjusted earnings per share of $1.70 on revenue of $1.3 billion, coming in ahead of the FactSet consensus, which called for $1.66 and $1.2 billion, respectively. The company also boosted its revenue- and cost-synergy targets by $25 billion each. Global Payments GPN, +2.51% now expects more than $125 million in revenue synergies and more than $325 million in cost savings as a result of the merger, which closed on Sept. 18.
Chief Executive Jeff Sloan told MarketWatch that the company began its integration planning in August “in earnest” and was able to get more data on the Total System Services, or TSYS, business once the deal officially closed a month later. “I think it’s just an across-the-board sense that we’re far ahead of where we would typically be on execution planning,” he said.
“Global Payments already raised its cost- and revenue-synergy guidance, and we believe it is likely Global Payments will exceed those new, higher targets over the next three years,” wrote Piper Jaffray’s Jason Deleeuw, who rates the stock overweight with a $198 target price.
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Global Payments also announced that it has reached a deal to purchase the merchant portfolio of Desjardins, a Canadian bank. The agreement will give Global Payments the bank’s portfolio of about 40,000 merchants as well as an exclusive referral partnership to provide acquiring solutions to Desjardins clients for the next 10 years. The deal is expected to boost Global Payments’ Canadian business by about $70 million.
The company announced another partnership arrangement with Citigroup C, -1.84% , which is to be focused on Global Payments’ e-commerce and omnichannel offering.
Sloan said that Global Payments saw a rebound in its U.K. business, with revenue accelerating to mid-single-digit organic growth — a “surprise,” given the Brexit overhang. He’s hopeful that the Dec. 12 election will remove that overhang. Sloan also sees the combined company as being positioned for the implementation of Secure Commerce Authentication (SCA) rules in Europe, which are meant to add more verification to purchases. The implementation of this regulation has been largely delayed for a year.
“Because we combine [TSYS’s] view of the issuer market with our view of the acquiring market, when consumers use their digital wallets or cards at merchants that are customers of ours, we see both sides of the transaction, so we don’t need to go to the networks to approve those under SCA protocol,” he said. “I actually think that’s a positive for our business that Global Payments and TSYS are going to do together because we can emulate functions Visa V, -0.30% and Mastercard MA, +0.24% can do without having to pay a fee to the networks.”
Global Payments’ all-stock deal for TSYS was one of three megamergers in the payments industry this year. In the others, Fiserv Inc. FISV, -0.42% combined with First Data, while Fidelity National Information Services Inc. FIS, -0.46% did a deal for Worldpay.
Global Payments shares have gained 64% so far this year, while the S&P 500 SPX, -0.66% has risen 21%.
