Yujiang Chen (Walter)

Zeyu Chi

Yin-Jen Kao

Ming Li

Yuqing ZhangPresented 11-10-2015

Agenda Current Holdings

Review Company and Its Business

Macroeconomics Overview

Industry Overview

Financial Analysis

Comparable Analysis

Projection and Valuation

Recommendation

Current Holdings

Purchased: 200 shares @ $36 on Nov 11,1999

Cost basis: $7,200

(We experienced two different 2 for 1 splits, resulting in the ownership of 800 shares at an adjusted cost basis of $9/share)

Sold: 400 shares @ $22.53 on January, 2007

Realized Gain on Sale: $5,412 (+150.33%)

Sold: 200 shares @ $56.75 on November, 2013

Realized Gain on Sale: $9,550

Current market value: $78.50*200 (11/9)

Vs. our $9/share cost basis = Gain: $13,900 ( +772.22%)

Company Introduction

Established since 1979, headquartered in Monett, Missouri

Listed on NASDAQ on October 29, 1985

Industry: Business Software & Services

Provides technology solutions and payment processing services for financial services organizations

Serves nearly 10,900 financial institutions through three brands:

Source: Annual Report (Pg.7-8)

Business Segments• Provides electronic payment

business and accounting ledger services to commercial banks

• Clients include nearly 1,200 banks

• More than 6,500 commercial banks and savings institutions in this asset rangeJack Henry Banking®

Source: 10-K (Pg.5)

Business Segments

• Provides electronic payment business and accounting ledger services to Credit Unions

• Serves credit unions of all sizes, with almost 800 credit union customers

• Over 6,500 domestic credit unions in industry

Symitar®

Source: 10-K (Pg.5)

Business Segments• Provides specialized products

and services to FI customers

• Serves financial services organizations of all asset sizes and charters, with approximately 10,500 domestic and international customers

ProfitStars®

Source: 10-K (Pg.5)

• Information Security & Risk Management

• Business Intelligence & Financial Performance

• Training & Consulting

Business Overview Revenue:

Support and service revenue (95%)

Hardware revenue (5%)

License revenue (<1%)

Key Strategies

Provide banks and CU with core software systems

Expand each core customer relationship

Capitalize on diversification acquisitions

Key Risks Involved

Information Security

Operational Risk

Restatement of financial statement

Source: 10-K (Pg. 6-7, 12-16, 21)

2013 2014 2015 -

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Revenue

Support and Service Hardware License

Thousands

95% 96%94%

Estimate of Support and Service Revenue

39%

27%

23%

6%5%

Support and Service Revenue Estimation

Electronic Payment

In-House Support & Others

Outsourcing

Implementation

Bundled Products & Services

Support and Service Revenue

  Year Ended June 30 Change

  2015 2014  

Support and service $1,200,652.00 $1,112,331.00 8%

Percentage of total revenue 96% 95%  

  Year over Year

  $ Change % Change 2014E 2015E

In-House Support & Other Services $ 3,603 1% 327,913 331,516

Electronic Payment Services 38,321 9% 425,789 464,110

Outsourcing Services 35,490 15% 236,600 272,090

Implementation Services 8,704 13% 66,954 75,658

Bundled Products & Services 2,203 4% 55,075 57,278

Total Increase 88,321   1,112,331 1,200,652

Estimate support and service revenue breakdown using changes

Acquisition Strategy

Fiscal Year

Company or Product Name Products and Services

Acquisition Payment (in Thousands)

2015 Portfolio management systems and factoring software 10,000

2014 Mobile banking, web development and data-enriched marketing technology 27,910

2010 Internet and telephone bill payment services 301,143

2010 Payment processing solutions for credit unions 61,841

2010 Integrated technology and payment processing solutions 67,617

Complement internal growth, diversification, and expand product offerings

29 acquisitions since the end of fiscal 1999 Increasingly difficult to find proven products/services to optimize the

clients’ operational issues.

Source: 10-K (Pg. 7)

SWOT Analysis

Strengths• Integrated product lines• Strong business

relationship

Weaknesses• Internal control over

financial reporting • Relative Small size to

rivals

Opportunities• Acquisition strategy• Outsourcing

Threats• Banks internalized the IT

systems • Uncertainty in Banking

industry

Banking and credit union industry is expected to grow.

Source: Federal Reserve Bank of St. Louis

Assets (loans) of credit union

Assets of all commercial banks

Macroeconomic Overview

Total number of credit unions and commercial banks keeps decreasing. The number of credit unions has decreased by 30% since 2006, and the number of commercial banks has decreased by 26% since 2006.

Source: Credit Union National Association Federal Reserve Bank of St. Louis

Number of credit union Number of all commercial banks

Macroeconomic Overview

Industry at a Glance

JKHY Mainly serve commercial banking and credit union industry

Source: www. IBIS World.com

Commercial banking revenue

Credit union revenue

Porter’s Five ForcesEntry of new competitors:

Medium• No formal

prohibitions• Difficult for new

companies to gain customers

• Economies of scale

Threat of substitutes:

Low

• Long term contracts

• High switching cost

Determinants of buyer power:

Low• Reluctant to change• More banks show

preference for outsourced delivery

Determinants of Supplier Power:

Low• Hardware and

software markets is fairly competitive

Rivalry determinants: High

• Highly competitive and consolidation market

• Various larger competitors with more resources and advanced technology.

Major Competitors Overview

1.Fidelity National Information Service, Inc.

Provides banking and payments technology, consulting, and outsourcing service worldwide

Electronic funds transfer services

Core processing software applications to run banking processes

Payment service such as outsourced card-issuer services and customer support

2. Total System Services, Inc.

Provides electronic payment processing services to banks and other financial institutions in the United States, Europe, Canada, Mexico, and internationally.

Account processing

Processing services, related systems, and integrated support services

Major Competitors Overview (cont.)

3. Global Payments Inc.

Provides payment for credit cards, debit cards, electronic payments, and check-related services, operates in both North America and International market. Authorization processing Settlement and funding processing Customer support Payment card industry security

4. DST Systems Inc.

Technology-based information processing and servicing in the United States, United Kingdom, Canada, Australia, and internationally. Customers information processing service Maintaining investor identification and ownership records

Stock Market Prospects and Comparison

Source: Yahoo Finance11/9/2005-11/9/2015

JKHY generate superior return over its competitors over the past ten years.

Technical Analysis

Source: Yahoo Finance

Ratio Analysis

Source: 10-K

2011 2012 2013 2014 2015

41% 41% 42% 42% 43%

22% 23% 23% 25% 25%

14% 15% 15% 16% 17%

Profitability Ratio

Gross Profit Margin Operating Profit Margin Net income Margin

2011 2012 2013 2014 2015

4.55 4.77 5.00 5.23

2.50 2.422.80 2.84

3.76 3.84 3.964.27

Turnover Ratio

Account Receivable Turnover Assets Turnover

Fixed Assets Turnover

2011 2012 2013 2014 20150.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

0.00

0.50

1.00

1.50

2.00

DuPont Analysis

Tax Burden Interest Burden Profit Margin Assets Turnover Leverage Ratio

2011 2012 2013 2014 2015

44.88%48.49% 47.66%

56.18% 59.47%

20.92% 21.19% 23.06%29.52% 30.44%

Greenblatt Ratio

EBIT/Tangible Assets EBIT/Enterprise Value

Comparable Analysis

Source: capital IQ, Yahoo Finance

Income Statement ProjectionLicense accounts for less than 1% of total revenue. Based on 10K, license revenue fluctuates year over year, so we assign a growth rate of zero to smooth out. Also, because of the accounting error, we added back unrealized revenue from restatement of annual report for the next five years.

CONSOLIDATED STATEMENTS OF INCOME-in Thousands Forcasted

2015 2016E 2017E 2018E 2019E 2020EREVENUELicense $2,635.00 $40,403.23 $74,390.23 $108,377.23 $142,364.23 $176,351.23YoY Growth 20.65% 143.50% 0.00% 0.00% 0.00% 0.00%Unrealized Revenue from Restatement 33,987.00 33,987.00 33,987.00 33,987.00 33,987.00

Support and service 1,200,652.00 1,311,229.50 1,465,743.28 1,648,284.63 1,864,658.29 2,122,238.08YoY Growth 7.94% 9.21% 11.78% 12.45% 13.13% 13.81%Unrealized Revenue from Restatement (16,250.4) (16,250.4) (16,250.4) (16,250.4) (16,250.4)

In-House Support & Other Services 324653.00 340885.65 361338.79 386632.50 417563.10 455143.78YoY Growth 1.00% 5% 6% 7% 8% 9%

Electronic Payment Services 472127.00 519339.70 576467.07 639878.44 710265.07 788394.23YoY Growth 9.00% 10.00% 11.00% 11.00% 11.00% 11.00%

Outsourcing Services 280175.00 325003.00 380253.51 448699.14 533951.98 640742.37YoY Growth 15.00% 16.0% 17.0% 18.0% 19.0% 20.0%

Implementation Services 93694.00 107748.10 123910.32 142496.86 163871.39 188452.10YoY Growth 13.00% 15% 15% 15% 15% 15%

Bundled Products & Services 30003.00 34503.45 40024.00 46828.08 55257.14 65755.99YoY Growth 4% 15% 16% 17% 18% 19%

Hardware 52,903.00 51,844.94 50,808.04 49,791.88 48,796.04 47,820.12YoY Growth -9.81% -2.00% -2.00% -2.00% -2.00% -2.00%

Total revenue 1,256,190.00 1,403,477.67 1,590,941.55 1,806,453.74 2,055,818.55 2,346,409.43YoY Growth 7.08% 11.72% 13.36% 13.55% 13.80% 14.14%

Growth rate based on the asset growth rate of commercial banking and credit union industry

Based on 10K, management team forecasts a strong growth trend in outsourcing service.

WACC Calculation

CAPM based Cost of Equity 7.76%

Return to shareholders over the past 5 years 25.17%

Cost of Equity 11.24%

Cost of Debt 3.18%

Current Stock Price 78.77

Shares Outstanding (thousands) 79,929.13

Debt (thousands) 52,700.00

Equity (thousands) 6,296,017.41

Equity Weight 99.17%

Debt Weight 0.83%

Tax Rate 35.00%

WACC 11.16%

Business Risk Premium 0.50%

Discount Rate 11.66%

Perpetual Growth Rate 3.00%

WACC & FCF Valuation CAPM Calculation

Beta 0.74

Risk-Free 2.20%

Market Premium 7.50%

Cost of Equity 7.76%

WACC & FCF Valuation

72.51611167 2.000% 2.500% 3.000% 3.500% 4.000%

10.66% 74.73 78.26 82.26 86.81 92.05

11.16% 70.51 73.61 77.09 81.02 85.50

11.66% 66.74 69.47 72.52 75.94 79.80

12.16% 63.34 65.76 68.45 71.44 74.81

12.66% 60.25 62.41 64.80 67.44 70.39

DiscountedRate

Terminal Growth Rate

Sensitivity Analysis

Recommendation

DCF Valuation:$72.52

Comparable Analysis:$72.85

Current Stock Price:$78.50

Hold The price calculated from DCF valuation and

Comparable valuation is 7.75% less than current stock price, which is within the 10% fluctuation range

More efficient cost management

Utilizing conservative cash flow forecast