1

Global Payments, Inc.NYSE: GPN

Recommendation: SELL

Angela Wang and Jonathan Plas

Investment Thesis

2

Recommendation: Global Payments, Inc. (NYSE: GPN) is overvalued in the market with substantial long-term downside, therefore we recommend a sell.

Rationale: Pressured on its ecommerce vertical from market entrants, blocked from accessing East Asian growth by local competition, and with prices dropping worldwide, we believe Global Payments faces substantial obstacles to continued revenue growth

Price Target: $108.92

-19.08% downside to current price of $134.69

1

2

3 Prices dropping industry-wide

Blocked from accessing East Asian growth by Alipay and WeChat Pay

Technologically outclassed by new competitors Stripe and Square

Company Overview

3

Company Profile Historical Stock Chart

2018 Revenue by Segment Revenue Breakdown ($ in millions)

§ Global Payments Inc. was founded in 1967, headquartered in Atlanta, Georgia; the company has approximately 11k employees in 32 countries

§ Global Payments Inc. provides payment technology and software solutions for card, electronic, check, and digital-based payments.

§ Global Payments Inc. partners with providers to deliver highly competitive e-commerce and omnichannelsolutions

§ The company operates in three segments: North America, Europe, and Asia-Pacific

71%

23%

6%

North America Europe Asia-Pacific

0%5%10%15%20%25%30%35%40%45%

$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500

2014 2015 2016 2017 2018

North America Europe

Asia-Pacific EBITDA Margin (%)

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Mar-14 Mar-15 Apr-16 Apr-17 Apr-18

$134.00

CAGR: 7.15%

Industry Characteristics Payments Revenue Growth By Region

17%

9%

10%64%

North America

Latin America

Europe, Middle East,and Africa

Asia-Pacific

Industry Overview

Global E-Commerce by Platform (%)Emerging Trends

0102030405060708090

100

Global Asia-Pacific NorthAmerica

Europe,Middle East,

and Africa

LatinAmerica

Web Browser Mobile App

§ The payment technology services industry provides merchants with credit, debit, gift, and loyalty cards, other payment processing services, and analytics technology for these products

§ The industry continues to grow as a result of wider merchant acceptance and advances in payment processing and technology services

§ As payment using credit cards (both in physical and ecommerce retail) continues replacing cash transactions, payment processors are servicing increasing volumes

Global Expansion

Paper-based Transactions

§ Firms are increasingly pursuing acquisitions, creating alliances, and forming joint ventures to stay competitive in an increasingly consolidated and well-capitalized competitive landscape

§ Industries such as education, government, and healthcare are expected to see transactions migrate to electronic-based solutions

Technologically outclassed by new competitors Stripe and Square

5

Chinese Competitive Landscape

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Blocked from accessing East Asian growth by Alipay and WeChat Pay2

The Future of Brick-and-Mortar Payments Platforms & APIs

Asia Growth Captured by Domestic Competition

§ Global Payments and US competitors are being boxed out of the fastest-growing market in the industry

§ Stripe and Square (22.5B & 32.96B) are putting pressure on Global Payments’ payment processing vertical, a lynchpin of its broader business

§ Stripe is much better positioned to take advantage of the shift towards mobile payments

§ Square is putting pressure on POS incumbents

Intense Global Competition From Market Entrants

50%41%

9%

Alipay WeChat Others

§ In China, almost all growth in the payments processing market is being captured by WeChat Pay and Alipay.

Electronic Payments Volume ($ in trillions)

$0

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2008 2012 2013 2014 2015 2016 2017 2018

2013-18 CAGR: 7.3%

Increasing Electronic Payments Volume

Decreasing Rates for Processors Electronic Payments Revenue ($ in billions)

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2008 2012 2013 2014 2015 2016 2017 2018

Large merchants Medium-size merchants Small merchants

2013-18 CAGR: 2.2%

3 Prices dropping industry-wide

§ Electronic payments volumes are increasing with the rise of e-commerce and the decline of cash-based transactions

§ Fully cashless retail stores are emerging in major US cities

§ Revenue for electronic payment processors like Global Payments is increasing at a significantly lower rate than payments volume, indicating that the proliferation of competition in the industry is putting pressure on the rates that processors can charge on credit card transactions

Possible Upside

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Focus on Food-Service Industry

Global Payments API Opportunities for Differentiation

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MRTSSM4521EUSS RSFSDPN

Restaurant Retail

Hospitality

Healthcare

Education

Campus

Nonprofit

Gaming

Payroll

Convenience

Investment Analysis

8

Why We Bought GPN? What Has Changed?

§ International expansion, investment acquisitions, and

new technology that drives earnings growth and

increases market share

§ Strategic positioning in online and mobile payments

markets, enabling it to capitalize as these markets grow

and develop

§ Key relationship with significant industry players,

securing revenue and market share

§ Strong and increasing net margins, excellent

management

§ Global payments has lost its technological edge with the

emergence of industry players such as Stripe and Square

§ Multiple M&As to advance their technology-enabled

strategy

§ Increased industry consolidation leads to heightened

competition e.g. Worldpay-Vantiv merger

Key Risks

9

ü Follow a defense-in-depth model for cybersecurity – employ multiple methods at different layers to defend the system and data

ü Continually update the service in order to remain competitive and increase earnings

ü Contractually agree to assist sponsor financial institutions to comply with the regulations

ü Expect to engage in additional acquisitions and evaluate on the basis of goodwill and other intangible assets

ü Dedicate a larger portion of cash flow from operations to repayment of the debt, reduce funds for general corporate needs, and avoid additional indebtedness

û Cybersecurity risks and other technological risks

û Intense competition – competitors are larger and have greater financial and operational resources

û Uncertainty around Visa and MasterCard registrations; membership in card networks

û Potential changes made to laws, regulations, card networks rules, or other industry standards in other foreign countries

û Goodwill & intangible assets account for majority of total assets on balance sheet

û Substantial indebtedness could decrease flexibility, potentially problematic in a downturn

Key Risks Mitigants

Final Recommendation

10

Recommendation: Global Payments, Inc. (NYSE: GPN) is overvalued in the market with substantial long-term downside, therefore we recommend a sell

Base Case

Price Target: $108.92Downside: -19.08%

Downside Case

Price Target: $79.32Downside: -41.11%

Appendix

11

Valuation – Comparable Companies Analysis

12

Valuation Statistics

Market Enterprise EV / Revenue EV / EBITDA Price / Earnings

Company Ticker Capitalization Value 2018A LTM 2018A LTM 2018A LTM

Square, Inc. SQ $30,625 $30,401 9.0x 9.2x 1616.4x 1647.3x NM NM

PayPal Holdings, Inc. PYPL 120,923 113,812 6.1x 7.4x 34.6x 41.6x 34.6x 57.5x

Worldpay, Inc. WP 33,032 40,731 8.1x 10.4x 20.6x 26.3x 20.6x 59.0x

First Data Corporation FDC 24,445 41,489 4.2x 4.8x 11.9x 13.5x 11.9x 22.0x

Total System Services, Inc. TSS 16,429 19,877 4.7x 4.9x 16.9x 17.7x 16.9x 35.1x

Global Payments Inc. GPN $21,150 $25,767 6.3x 7.7x 16.2x 19.6x 16.2x 61.5x

Low $16,429 $19,877 4.2x 4.8x 11.9x 13.5x 11.9x 22.0x

Mean 45,091 49,262 6.5x 7.3x 340.1x 349.3x 21.0x 43.4x

Median 30,625 40,731 6.1x 7.4x 20.6x 26.3x 18.8x 46.3x

High 120,923 113,812 9.0x 10.4x 1616.4x 1647.3x 34.6x 59.0x

Operating Statistics

Revenue Revenue Growth EBITDA EBITDA Margin

Company Ticker 2018A LTM '17-'18A LTM 2018A LTM 2018A LTM

Square, Inc. SQ $3,298 $3,298 49.0% 49.0% $18 $18 0.6% 0.6%

PayPal Holdings, Inc. PYPL 15,451 15,451 18.0% 18.0% 2,733 2,733 17.7% 17.7%

Worldpay, Inc. WP 3,925 3,925 (2.5%) (2.5%) 1,548 1,548 39.4% 39.4%

First Data Corporation FDC 8,679 8,679 6.8% 6.8% 3,080 3,080 35.5% 35.5%

Total System Services, Inc. TSS 4,028 4,028 (18.3%) (18.3%) 1,123 1,123 27.9% 27.9%

Global Payments Inc. GPN $3,366 $3,366 (15.3%) (15.3%) $1,316 $1,316 39.1% 39.1%

Low $3,298 $3,298 (18.3%) (18.3%) $18 $18 0.6% 0.6%

Mean 7,076 7,076 10.6% 10.6% 1,700 1,700 24.2% 24.2%

Median 4,028 4,028 6.8% 6.8% 1,548 1,548 27.9% 27.9%

High 15,451 15,451 49.0% 49.0% $3,080 $3,080 39.4% 39.4%

Valuation – WACC

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Capital StructureDebt-to-Total Capitalization 19.10%

Equity-to-Total Capitalization 80.90%

Cost of DebtCost of Debt 4.18%

Tax Rate 20.60%

After-tax Cost of Debt 3.32%

Cost of EquityRisk-free Rate(1) 2.43%

Market Risk Premium(2) 5.00%

Levered Beta 1.10

Cost of Equity 7.93%

WACC 7.05%

Valuation – DCF (Base)

14

FYE December 31, FYE December 31,($ in millions) 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2025ETotal Revenue $3,975.2 $3,366.4 $3,433.7 $3,485.2 $3,520.1 $3,537.7 $3,520.0 $3,467.2 $3,380.5

Revenue Growth 5.3% (15.3%) 2.0% 1.5% 1.0% 0.5% (0.5%) (1.5%) (2.5%)

ExpensesCOGS 1,876.4 1,928.0 1,095.0 1,391.2 1,428.9 1,460.8 1,485.8 1,496.0 1,490.9 1,470.5

Gross Profit $1,899.9 $2,047.1 $2,271.4 $2,042.5 $2,056.3 $2,059.2 $2,051.8 $2,024.0 $1,976.3 $1,910.0Gross Margin 50.3% 51.5% 67.5% 59.5% 59.0% 58.5% 58.0% 57.5% 57.0% 56.5%

SG&A (excl. SBC) 1,335.0 1,393.7 1,478.2 1,545.2 1,603.2 1,619.2 1,627.3 1,619.2 1,594.9 1,555.0Operating Expenses 1,335.0 1,393.7 1,478.2 1,545.2 1,603.2 1,619.2 1,627.3 1,619.2 1,594.9 1,555.0

Operating Income (EBIT) $564.9 $653.5 $793.2 $497.4 $453.1 $440.0 $424.5 $404.8 $381.4 $355.0EBIT Margin 15.0% 16.4% 23.6% 14.5% 13.0% 12.5% 12.0% 11.5% 11.0% 10.5%Income Tax Expense (24%) 61.1 (101.4) 77.5 48.7 44.4 43.1 41.6 39.7 37.4 34.8

EBIAT $503.8 $754.9 $715.7 $448.6 $408.7 $396.9 $382.9 $365.1 $344.0 $320.2

Cash FlowPlus: D&A 424.4 451.2 522.8 461.5 468.4 473.1 475.5 473.1 466.0 454.3

Discretionary Cash Flow $928.2 $1,206.0 $1,238.5 $910.1 $877.1 $870.0 $858.4 $838.2 $810.0 $774.5Less: Increase in NWC (302.2) 216.5 (178.5) (63.8) (34.4) (34.1) (32.5) (28.0) (22.5) (16.4)Less: CapEx (152.4) (181.9) (213.3) (217.6) (220.8) (223.0) (224.2) (223.0) (219.7) (214.2)

Free Cash Flow $1,230.4 $989.5 $1,417.0 $973.9 $911.5 $904.1 $890.9 $866.2 $832.5 $790.9Free Cash Flow Growth (19.6%) 43.2% (31.3%) (6.4%) (0.8%) (1.5%) (2.8%) (3.9%) (5.0%)

Unlevered Free Cash FlowWACC 7.05%Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5Discount Factor 0.97 0.90 0.84 0.79 0.74 0.69 0.64

Present Value of Free Cash Flow $941.3 $822.9 $762.5 $701.9 $637.5 $572.4 $507.9

Valuation – DCF (Base)

15

Enterprise Value DCF Sensitivity AnalysisCumulative Present Value of FCF $4,946.5Terminal ValueTerminal Year Cash Flow $790.9Exit Multiple 20.0x

Terminal Value $15,817.9Discount Factor 64.22%

Present Value of Terminal Value $10,158.9% of Enterprise Value 67.3%

Enterprise Value $15,105.5

DCF Sensitivity AnalysisWACC

71.84 5.0% 6.0% 7.0% 8.0% 9.0%16.0x $67.61 $63.15 $58.98 $55.08 $51.4218.0x $74.88 $69.99 $65.41 $61.13 $57.12

EV/EBITDA 20.0x $82.14 $76.82 $71.84 $67.19 $62.8222.0x $89.41 $83.66 $78.27 $73.24 $68.5224.0x $96.68 $90.49 $84.70 $79.29 $74.22

Method Weight PriceComparable Companies 30% $195.4DCF 70% $71.8Fair Value Estimate $108.92

DCF Implied Equity Value and Share PriceEnterprise Value $15,105.5

Less: Total Debt $4,965.0Plus: Cash & Cash Equivalents $1,210.9

Implied Equity Value $11,351.4Implied Share Price $71.84Shares Outstanding 158

Comps Implied Equity Value and Share PriceEnterprise Value $34,632.6

Less: Total Debt $4,965.0Plus: Cash & Cash Equivalents $1,210.9

Implied Equity Value $30,878.5Implied Share Price $195.43Shares Outstanding 158

Valuation – DCF (Downside)

16

FYE December 31, FYE December 31,($ in millions) 2015A 2016A 2017A 2018A 2019E 2020E 2021E 2022E 2023E 2024E 2025ETotal Revenue $3,975.2 $3,366.4 $2,861.4 $2,432.2 $2,067.4 $1,757.3 $1,493.7 $1,269.6 $1,079.2

Revenue Growth 5.3% (15.3%) (15.0%) (15.0%) (15.0%) (15.0%) (15.0%) (15.0%) (15.0%)

ExpensesCOGS 1,876.4 1,928.0 1,095.0 930.8 791.1 672.5 571.6 485.9 413.0 351.0

Gross Profit $1,899.9 $2,047.1 $2,271.4 $1,930.6 $1,641.1 $1,394.9 $1,185.7 $1,007.8 $856.6 $728.1Gross Margin 50.3% 51.5% 67.5% 67.5% 67.5% 67.5% 67.5% 67.5% 67.5% 67.5%

SG&A (excl. SBC) 1,335.0 1,393.7 1,478.2 1,144.6 972.9 826.9 702.9 522.8 444.4 377.7Operating Expenses 1,335.0 1,393.7 1,478.2 1,144.6 972.9 826.9 702.9 522.8 444.4 377.7

Operating Income (EBIT) $564.9 $653.5 $793.2 $786.1 $668.2 $567.9 $482.8 $485.0 $412.3 $350.4EBIT Margin 15.0% 16.4% 23.6% 27.5% 27.5% 27.5% 27.5% 32.5% 32.5% 32.5%Income Tax Expense (24%) 61.1 (101.4) 77.5 77.0 65.5 55.7 47.3 47.5 40.4 34.3

EBIAT $503.8 $754.9 $715.7 $709.0 $602.7 $512.3 $435.4 $437.5 $371.9 $316.1

Cash FlowPlus: D&A 424.4 451.2 522.8 384.6 326.9 277.9 236.2 200.7 170.6 145.0

Discretionary Cash Flow $928.2 $1,206.0 $1,238.5 $1,093.6 $929.6 $790.1 $671.6 $638.2 $542.5 $461.1Less: Increase in NWC (302.2) 216.5 (178.5) 388.1 (14.6) (12.4) (10.5) (9.0) (7.6) (6.5)Less: CapEx (152.4) (181.9) (213.3) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Free Cash Flow $1,230.4 $989.5 $1,417.0 $705.5 $944.2 $802.5 $682.2 $647.2 $550.1 $467.6Free Cash Flow Growth (19.6%) 43.2% (50.2%) 33.8% (15.0%) (15.0%) (5.1%) (15.0%) (15.0%)

Unlevered Free Cash FlowWACC 7.05%Discount Period 0.5 1.5 2.5 3.5 4.5 5.5 6.5Discount Factor 0.97 0.90 0.84 0.79 0.74 0.69 0.64

Present Value of Free Cash Flow $681.9 $852.4 $676.9 $537.4 $476.3 $378.2 $300.3

Valuation – DCF (Downside)

17

Enterprise Value DCF Sensitivity AnalysisCumulative Present Value of FCF $3,903.5Terminal ValueTerminal Year Cash Flow $467.6Exit Multiple 15.0x

Terminal Value $7,014.0Discount Factor 64.22%

Present Value of Terminal Value $4,504.7% of Enterprise Value 53.6%

Enterprise Value $8,408.2

DCF Implied Equity Value and Share PriceEnterprise Value $8,408.2

Less: Total Debt $4,965.0Plus: Cash & Cash Equivalents $1,210.9

Implied Equity Value $4,654.1

Implied Share Price $29.46

Shares Outstanding 158

Comps Implied Equity Value and Share PriceEnterprise Value $34,632.6

Less: Total Debt $4,965.0Plus: Cash & Cash Equivalents $1,210.9

Implied Equity Value $30,878.5

Implied Share Price $195.43

Shares Outstanding 158

Method Weight PriceComparable Companies 30% $195.4DCF 70% $29.5Fair Value Estimate $79.25

DCF Sensitivity AnalysisWACC

29.46 5.0% 6.0% 7.0% 8.0% 9.0%16.0x $36.73 $33.96 $31.36 $28.92 $26.6318.0x $41.03 $38.00 $35.16 $32.50 $30.00

EV/EBITDA 20.0x $45.33 $42.04 $38.96 $36.07 $33.3722.0x $49.63 $46.08 $42.76 $39.65 $36.7424.0x $53.92 $50.12 $46.56 $43.23 $40.11