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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.

5yrs of JKHY

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

Disclaimer: Capital 19 Pty Ltd ABN 17 124 264 366 AFSL 441891 (‘Capital 19’) believes the information contained is reliable, however, no warranty is given as to its accuracy and persons relying on this information do so at their own risk. This communication is for general information only and was prepared for multiple distributions and does not take account of the specific investment objectives of individual recipients and it may not be appropriate in all circumstances. Persons relying on this information should do so considering their specific investment objectives and financial situations. Any person considering action based on this communication must seek individual advice relevant to their circumstances and investment objectives. Subject to any liability which cannot be excluded under the relevant laws. Any opinions or forecasts reflect the judgment and assumptions of Capital 19 and its representatives based on information at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future. The investment manager certifies that all the views expressed in this document accurately reflect their views about the companies and securities referred to in this document and that their remuneration is not directly or indirectly related to the views. Capital 19, its directors, representatives, employees or related parties may have an interest in any of the companies and securities in this document and may earn revenue from the sale or purchase of any financial product referred to in this document or any advice. Past performance is not a reliable indicator of future performance. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this document is prohibited without obtaining prior written permission from Capital 19.
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