Charlie Penicook and Zuowei Xu November 19, 2013.

Charlie Penicook and Zuowei Xu

November 19, 2013

Agenda

Introduction Macroeconomic Outlook Industry Overview Company Overview Financial Analysis Valuation Recommendation

The Jack Henry Associates

Founded by Jack Henry and Jerry Hall in 1976

A provider of information systems and services for more than 11,900 financial institutions and corporate entities

Listed in the NASDAQ on October 29, 1985

Industry: Business Software & Services

Source: Jack Henry Company Website

Current Holding Information

November 11, 1999: Purchased 200 shares at $36.00/share ($7,200 total investment)

2:1 Split twice in 2000 and 2001, which took the holding to 800 shares at $9 per share

January 15, 2007: Sold 400 shares at $22.53 for a realized gain of $5,412

November 18, 2013 Price: $56.71 Unrealized Gain: 530.11% ($19,084) Total Position Value: $22, 684 (5.08% of total

portfolio)

Source: Yahoo Finance

Macroeconomic Outlook

The Federal Reserve Bank can control the financial institutions by controlling the supply of money, raising/lowering the reserve requirement and through open market operations.

The incoming Chair, Janet Yellen, announced that the Fed would continue the current Quantitative Easing policy.

Federal Reserve

Bank

Banking Industry&

Credit Union

Business Software&

Service

Macroeconomic Outlook

Source: JKHY 2013 Shareholder Meeting

Business Software & Service

Source: Hfs Research, 2013 market sizing data

The IT and business services outsourcing market is at 170 billion in 2012. And the banking process outsourcing services made up about 85 billion.

Business Software & Service

Industry Forces Analysis


Bargaining Power of Suppliers: LOW The company’ s technology and service is its

advantage, and the market for suppliers of hardware is competitive.

Bargaining Power of Buyers: LOW Clients are reluctant to change for high

switching cost Threat of New Entrants: LOW

Dodd- Frank makes it more difficult for new entrants

Economies of scale


Threat of Substitutes: LOW Brand advantage, high switching cost

Rivalry among Competitors: HIGH Mature market and consolidation

Company Overview

A Provider of core information processing solutions for more than 11,300 financial institutions and corporate entities

Supports 1300 community banks around the country, about 1/5 of the banks in United States

Supports 760 credit unions, about 1/10 of the credit unions in United States.

Source: Jack Henry Company Website

Company Overview


Small Banks

Credit Unions

Specialized Products and service for other financial institutions

Company Overview

Wide MoatHigh switching cost for core processing serviceFocus on small banks and credit unionsLong-term contract with clients to ensure the future revenue growthDebt-free, ready to make acquisitions



Company Overview

Business Risk Analysis

Source:10-K, JKHY Co., FY 2013

SWOT Analysis

Strengths Weaknesses- Recurring revenue- Strong free cash flow for

repurchase and acquisitions.

- Relatively small size compared to rivals

Opportunities Threats- More banks tend to

outsource their data and processing system

- Growth through acquisition

- Banking Failure increases - Hard to find proven

acquisition target- Negative Macroeconomic

outlook

Strategy

Concentrate on information systems and services for small banks and credit unions

Develop the latest processing platform and advancing technologies

Maintain the high levels of customer satisfaction

Strategy change: A mobile strategy for online payments

Management Outlook

Positive 2012 Performance Reaches All-Time High Strong sales performances by all brands Continued strong profit margins Exceptionally high associate satisfaction ratings Exceptionally high customer satisfaction ratings

Concerns The improved economic situation made bank

move the processing system in-house

Source: JKHY Consolidated Shareholder Meeting

Recent News

JKHY Reports 2014 Q1 Earnings: November 5, 2013 9% increase in revenue, 11% increase in gross

profits, 17% increase in net income over the first quarter of fiscal 2013

American Airlines Federal Credit Union completes successful conversion to Symitar Core system: November 13 $5.6 billion in assets and operates as the 13rd

largest credit union in the United States Jack Henry& Associates announces iPad

Compatible Banking: November 14 The app supports traditional in-branch and online

transactionsSource: Yahoo Finance

Recent Financial Information

Source: JKHY Shareholder Meeting


The company keeps rising dividend rate for



The company would pay $0.80 dividend per share at current dividend rate.




The company would continue to repurchase their shares because the they believe the stock value is undervalued

Current Stock Information

Source: Capital IQ, Yahoo Finance

Metric Value

Current Stock Price $56.82

Trailing P/E26.68

Forward P/E 21.69

Dividend Yield 1.40%

Market Cap($ millions) $4.86 B

Financial Analysis

NOTE: The years above refer to the fiscal years ending on June 30

Stock Performance


Roughly in line with peers High industry growth

Comparable Company Analysis

Source:

Discount Rate


Regression6-year (pre-Dodd Frank) beta of .89High ROE Low debt weightPaid-down debt

No business risk premiumFor demonstrational purposes

DCF Analysis

Discount: 10.65%

Terminal Growth:

3.5%

Current Price:

$56.71

Decision Drivers

Strengths: Stable revenue

growth Long-term contracts Increasing Dividend

Paid down debt New Product

offerings

Concerns: Overvalued: Over

100% price growth LTM

Net Income growth of 13%

Recommendation

Valuation Summary: DCF: $ 36.01 Comps: $41.48

Recommendation: Sell 200 shares @

market price of $56.71 to realize gain of $9,542

Hold Remaining 200 shares.

Questions?

Charlie Penicook and Zuowei Xu November 19, 2013.

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Transcript of Charlie Penicook and Zuowei Xu November 19, 2013.