Fiserv Inc (FISV, Financial) – currently held in the following strategies: Global Equity, U.S. Value Equity, Enhanced Income
Fiserv is a leading provider of financial technology services for merchants worldwide, including governments and companies, as well as financial institutions such as banks and credit unions. After its 2019 merger with First Data, a leading payment processing company, Fiserv holds a strong market position in each of its three key business segments, which comprise of:
- Merchant acceptance—provides merchants with a wide range of products and services, including the means to accept payments through equipment, underwriting and transaction processing. This segment includes Fiserv’s high growth Clover product offering for small- and medium-sized businesses. Clover boasts a gross payment volume similar to its competitor, Square.
- Financial technology—provides financial institutions with technology solutions, such as back-end payment processing, to run their businesses.
- Payments and network—provides products and services, such as outsourced information technology software, to process digital payment transactions.
We first purchased Fiserv as its price declined in 2021. The company’s share price continued to retreat in early 2022 due to several factors, including increasing competition in the merchant acceptance space and the overhang from KKR’s sale of its ownership stake (private equity firm KKR held a major portion of First Data). We added to our position in Fiserv amid the share-price decline as we believed it traded at an attractive valuation relative to its favorable economics and long-term secular tailwinds. As banks increasingly outsource their payment transactions (including debit- and credit-card processing) and consumers progressively shift from cash to card payment, Fiserv could—in our opinion—benefit from these trends. We also believe the company has the potential to improve its operating margin and free cash flows as it continues its integration with First Data, and to strengthen its earnings per share growth once it resumes share buyback program. Prior to the First Data merger, Fiserv had used its strong free cash flow generation to repurchase 30% of its shares outstanding over an eight- year period.
While competition will likely remain intense given the long-term secular tailwinds of the industry, we believe that Fiserv’s strong relationships with large banks and merchants, as well as with smaller businesses through its Clover product offering, put the company in a strong competitive position. At its current valuation, Fiserv represents an attractive risk/reward tradeoff to us.
From Charles Brandes (Trades, Portfolio)' Brandes Investment Partners fourth-quarter 2022 letter.
