20 May Banking Set to Change and One Stock to Benefit
The global pandemic has changed the way we do things. With populations under lockdown we have changed our behaviour almost overnight. Instead of going to the shop we buy online. We expect to be able to access everything we need online – Food, medicine, healthcare, education, entertainment and other essentials. How many of you tried to order toilet roll online? Would you ever have done this before? The world has changed.
Here is the funny thing about ordering online, we expect to be able to do it and we expect it to be easy. But the truth is for these companies to be able to deliver the experience we expect it takes a lot of modern technological infrastructure.
Unfortunately, some sectors have not upgraded their infrastructure. Many state governments still use a programming language called COBOL for example.
According to an NPR story, sadly this same decades-old code still supports 43% of the US Banking System.
Coronavirus and the demand for online service have highlighted this to the banking industry and they are rushing to upgrade their delivery systems.
Which is where Jack Henry and Associates (JKHY) comes in. The company began its life helping regional banks and credit unions control risks and manage regulatory filings. Since 2009, it has been helping those same institutions transition to cloud-based, online banking.
Before the world went into lockdown the business was predictable and growing steadily with increasing sales and rock-solid profit margins. Revenues in 2019 reached $1.55 billion up 5.6% on the prior year and profit margins ran at an amazing 44%.
But with cornonavirus business is booming.
On May 5th, JKHY reported record sales, operating income and profits for the third quarter. They announced that bookings were up 12% from last year’s record level on the strength of higher data processing, hosting fees and software usage.
Jack Henry is a solid company with great profit margins that has been growing consistently and rewarding shareholders for a long time. It is also now set to benefit even more from the changing world.
Investors also benefit from regular quarterly dividends.
We would love to be able to acquire shares at $170 but that might never happen, so we would be happy to buy up to $180