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Global Payments Inc. (NYSE:GPN) shares are changing hands near 52-week lows as investors “debate around underlying organic growth and potential share loss in the merchant acquiring business,” Mizuho Securities wrote in a recent note.
But the payment technology company has a couple of options that, if implemented, could help to reverse the poor sentiment, in analyst Dan Dolev’s view.
“Our sum-of-the-parts analysis suggests that the combination of a potential sale of the Merchant Solutions business and a spin-off of Issuer could unlock ~30% of value,” he said.
Specifically, the note said, GPN’s issuer processing business is estimated to be worth $40-$45 per share on a standalone, unlevered basis. Offloading the troubled point-of-sale (“POS”) business could drive another $145-$150 per share value (unlevered), or total GPN value of $125-$130 per share when taking into account $62 of net debt per share.
Merchant Solutions adjusted operating income of $790.4M in Q1 fell from $797.3M in the previous quarter and climbed from $688.3M in the year-earlier period. Adjusted operating income for Issuer Solutions was $241.4M in Q1, down from $251.0M in Q4 2023 and up from $215.2M in Q1 2023.
Dolev pointed out that the Merchant unit’s constant currency revenue growth, excluding EVO and dispositions, has lagged that of key rival Fiserv (FI) since 2019. He added that the spread between the two has widened in recent quarters.
“The leading cause of slower growth could be GPN’s lack of branded POS solutions,” the analyst said. Those with branded products, including Fiserv (FI), Toast (TOST) and Block (SQ), have achieved share gains in the North America POS industry. “Given the stiff competition, GPN has struggled to both defend market share and organically win new merchants, as disruptive technologies of peers have accelerated the displacement of legacy GPN systems.”
Unlike Merchant, where GPN is losing market share, its issuer processing arm has been going strong, with stable mid-single-digit core growth and room for expansion. The unit accounts for 20%-25% of the $8B-$9B total addressable market, Dolev said, “with an opportunity to double the TAM with expansion in products such as fraud & risk management, digital, and commercial payments.”
Dolev contended that the market may reward Global Payments (GPN) should it decide to spin off its POS business. Recall last year when rival Fidelity National Information Services (FIS) sold a majority stake in its Merchant Solutions business, known as Worldpay, after buying it for about $35B in 2019. Markets reacted positively, with shares up some 40% from a year ago.
GPN stock, meantime, has underperformed peers and the market. Over the past five years, GPN has slid 37% compared with the S&P 500’s 89% climb and the legacy payments group’s 16% increase, said Dolev, who has a Neutral rating on GPN.
