Fidelity Seals Bradesco Deal - Analyst Blog

Electronic payment processor, Fidelity National Information Services Inc. (FIS) announced that it has signed a deal or memorandum of understanding (MOU) with Banco Bradesco (BBD), a Brazilian card processing bank. Financial terms of the deal were not disclosed.

Under the 10-year deal, Fidelity Processadora e Servicos S.A (FPS), Fidelity's Brazil-based card processing services company, will provide card processing, call center, collection and back-office services for Banco Bradesco's private label and bank card including Visa and MasterCard portfolios.

Fidelity Processadora e Servicos S.A., a three-way joint venture between Fidelity, Banco Real and Banco Bradesco, provides a broad range of card processing and support services including call center management, back-office support, card transaction processing, risk management and collection services in Brazil.

In order to spur growth, Fidelity had formed a joint venture with leading banks in Brazil to provide end-to-end outsourced credit and prepaid card processing services to the country's card issuers.

With this recent deal, Fidelity will maintain its existing 51% in the joint venture and increase Banco Bradesco's ownership to 49%. Additionally, the company had earlier previously pointed out that Banco Santander will exit the joint venture.

Fidelity has been expanding its offshore presence and broadening its footprint in Brazil with its back-office outsourcing and item processing operation, entitled Fidelity BPO Brazil. The company has won a few contracts in the area to support its growth strategy.

We believe Fidelity BPO Brazil will offer cross-selling opportunities between the company's card processing and item processing clients as well as a more comprehensive service offering to other financial institutions.

The company currently supports more than 40 million card accounts in Brazil, including over five million prepaid cards.

Fidelity has also been expanding its card and payment processing scale in Australia, Brazil, New Zealand and Thailand. The company is also the number one core processing provider in Europe and China and retail core processor in Germany.

Going forward, the company plans to focus on tier 1 and 2 banks in Western Europe and EMEA and expand its payment processing business throughout Asia and Latin America. The company has nine domestic and four international technology centers and enjoys relationship with more than 75% of the U.S. financial institutions, making it one of the preferred financial institution service providers.

In the recently reported third quarter, Fidelity's International Solutions revenues totaled $199.4 million, up 2.3% year over year. The results were driven by higher volumes from its Brazil and Asia Pacific card processing operations. However, EBITDA margin was 23.3% compared with 24.9% in the prior-year quarter. The decline was primarily due to delays in converting the Bradesco portfolio.

In the card issuer services market, Fidelity's competitors include MasterCard Incorporated (MA) and Visa Inc. (V) as well as third-party credit and debit card processors such as First Data Corporation, Total System Services Inc. (TSS), Electronic Data Systems Corporation and Payment Systems.

However, the definitive agreement with Banco Bradesco will likely enable Fidelity to expand its Brazilian operations. In our opinion, such a deal will be beneficial for Fidelity on a long-term basis. This deal will support its international growth objectives, driving the top-line growth going forward.

New deal signings will help Fidelity to attain its growth target going forward. We have a Neutral recommendation on the stock over the long term.

Currently, Fidelity has a Zacks #3 Rank, which implies a short-term Hold rating (for the next 1-3 months), given there is no directional move in analysts' estimates for the upcoming quarter or fiscal 2010.

 
BANCO BRADESCO (BBD): Free Stock Analysis Report
 
FIDELITY NAT IN (FIS): Free Stock Analysis Report
 
MASTERCARD INC (MA): Free Stock Analysis Report
 
TOTAL SYS SVC (TSS): Free Stock Analysis Report
 
VISA INC-A (V): Free Stock Analysis Report
 
Zacks Investment Research