Transaction Systems Architects TSAI
July 13, 2000 - 12:33pm EST by
2000 2001
Price: 19.50 EPS 0
Shares Out. (in M): 33 P/E
Market Cap (in $M): 0 P/FCF
Net Debt (in $M): 93 EBIT 0 0

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TSAI provides the software for the big banks' ATM networks. TSAI gets a small cut each time you use an ATM. The software is licensed on a per transation basis and not sold so it is an annuity type business.

TSAI missed estimates quite badly the last two quarters. The first one was after y2k but the last Q was perhaps a "hangover."

The CEO, Bill Fisher, retired and then returned to the company within the last six months. He returned after the debacle of the second quarter.

TSAI's main competitor in its consumer banking business is DLX. Together the both of them dominate the market. There is, however, upside growth in selling to big banks who have self-built legacy systems. The business model also supports revenue growth because the bank pays a licensing fee based on usage rather than owning the software outright. Therefore as more of the world uses ATMs TSAI earns more revenue.

Once TSAI is in a bank's computer it is hard to fire the company and unintall the software.

The company was also hit dragged into an accounting controversy regarding revenue recognition which I thought was pointless.

P/E (TTM) is only 23 while the P/S is 1.73.

ROE is 11%.


In order to unlock shareholder value the company has filed an S-1 for its infrastructure business which is 15% of sales. The spin off will probably be in August or September. The name is Insession Technologies (INSX). Check out the market cap comps once the red herring is issued. I'm guessing it will be in the $200-300 million range.

At the annual meeting the CEO said they will also spin-off the corporate banking or e-payments business which is 11% of revenue. The comparable company is Fundtech (FNDT). FNDT has a market cap of $367M on $10M in sales and -$748K net loss (3-31-00Q). For the same Q the comparable TSAI division had sales of $8.28M and a net loss of $313K.

The total market cap of TSAI is $602M. If INSX has a market cap of $300M and the epayments division at $250M, then the remainder of the company is only valued at $50M and 74% of the revenue is still there.

Bill Fisher is also one smart guy and he came back for a reason.
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