What's your opinion on the US company: Jack Henry?
$Jack Henry & Associates(JKHY)$ provides core processing and payment technologies to small and mid-sized banks and credit unions.
Their business model centers on delivering business-critical services (mostly via long term contracts), resulting very high recurring revenue (around 90%), Their philosophy emphasise employee and customer satisfaction first,believing shareholder value follows naturally
Business segments
Core Processing (1/3 of revenue): software that manages essential bank operations (deposits, loans, general ledger). Built largely organically, with a focus on cloud transition.
Payments (1/3 of revenue): Debit/credit card processing, bill pay and newer real-time payment solutions Driven by volume growth, ticd to increasing digital payment trends.
Complementary Solutions (1/3 of revenue): Ancillary products (fraud prevention, treasury management,digital banking) built largely through acquisitions
Pricing power
Barriers to entry: High switching costs, regulatory complexity and the need for deeply integrated solutions create signifcent barriers to entry
High switching costs: Migration of core systems is analogous to open chart surgery.
Customer retention: 99%+ client retention; only 15 credit union clients lost over 32 years.
Open API Architecture: Scamless integration with fintech partners, offering flexibility to clients.
Stable Market Share: ~25% in small banks and ~50% in credit unions.Long-term contracts (7-10 years for cloud customers), with CPI escalators.
Cloud migration (private cloud today, public cloud longer term) offers revenue uplift (~2x compared to on-premises hosting).
Risks
Cybersecurity: A major breach could damage reputation and client trust.
Cultural drift: Moving away from employee- and customer first culture could erode advantages.
Bank consolidation: Potential customer base shrinkage, though historically a net positive as jack Henry often gains more business after mergers.
Outlook
Growth: Rising digital payment volumes (~ 10% annual growth), increased I'T spending by banks and eventual public cloud migrtation.
Margin expansion: Operating margins (~22-24%) expected to expand ~30-40 basis points per year.
Resilience: Weathered GFC with stable growth, SVB collapse had minimal effect.
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