Total System Services (NYSE:TSS) is one of the largest credit card transaction processors in the US. It serves bank and private-label card issuers around the world. Offerings include credit authorization, payment processing, account management, e-commerce services, card issuance, and such customer-relations services as call-center operations and fraud monitoring. Synovus Financial, through subsidiary Columbus Bank and Trust Company, owns more than 80% of TSS.
It's the Chinese connection that caught my eye. While it's only 3 banks currently, the potential transactions China represents is extremely large. Of course, there's competition for all that business, but TSS has an established name and strong credibility so it will certainly get its fair share, if not more. In other overseas markets, TSS is beginning to process in Brazil, giving it a stronghold to service all of South America.
Another exciting prospect is the prepaid rewards card, a joint venture with Norwich Union in England. TSS will also be processing the new Wal-Mart Money Card issued by GE. There was a test run last year using 2600 Wal-Mart stores. This could develop into a major national program.
The one concern for shareholders is the high probability of Synovus Financial Corp. distributing its shares of TSS (it owns 81% of TSS) to Synovus shareholders. Management has asked the board of directors to make this decision. What happens is that the shares now held by Synovus will be given to shareholders of Synovus. Most likely some or many of those new shareholders will want to sell these new shares since they bought Synovus for Synovus, not for TSS. With a large number of shares for sale, the price of the stock will most likely need to go down to a level to attract new buyers. Whether that's a permanent new price or at what price that occurs, will be anyone's guess. But it is a definite negative overhanging the stock.
On the positive side, there are some numbers that impress: Net profit margin is 14% with expectations of 15% in the next few years. Return on Equity is 18%, down from 20.5% last year with forecasts for 14% in the next 5 years. Revenues are predicted to grow by 6% a year on average over the next 5 years while earnings should improve by 8.5% a year, on average, in the same time period. The dividend has grown every year for the last 4 years, starting with 8 cents a share in 2003, now at 28 cents a share. Current assets overwhelm current liabilities by more than 3 to 1 with cash at $452 million.
Credit card and debit processing will only grow as the world transacts more with plastic and online. Total System Services will facilitate many of those purchases. The near future is a little cloudy with the spin off a real possibility from Synovus Financial. Once those shares find new owners, this stock should do better.