Total Systems Services, Inc (TSS) is looking to broaden its product scope to include the merchant side as well as prepaid-card processing with the acquisition of NetSpend Holdings Inc (NTSP), says Brett Huff, Research Analyst at Stephens Inc.
“TSYS, Total System Services, [is] a company that has focused mostly on card-issuing processing, so a particular payments niche. Although they are very good at that, it was just one particular niche, and they have since broadened out to be a provider of not only the issuing processing but also the merchant side. Then they just recently they announced, but haven’t closed yet, their intent to buy NetSpend, which would be another product including prepaid-card processing,” Huff said.
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Huff is advising investors to keep an eye on TSS, because though the company has had price compression on some renewals and negatively impacted margins due to the loss of a few clients, he expects TSS to rebound in the back half of 2013.
“[Total Systems has] had some price compression on some renewals that they’ve done, and they’ve also lost a client or two that have made their organic growth look at least temporarily worse than it probably will be over time. That also negatively impacts margins, and so we think they’ll probably come out of that here in the back half of 2013. So while we are not interested long right now, we do think that’s a stock that folks should watch. And as the internal growth gets better, as I mentioned before, we think investors will likely reward that with a higher multiple, so while we are not wary of TSYS, we do think that TSYS is one that has been languishing for a while and would be worth watching,” Huff said.
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