Last summer, Vantiv Inc. acquired the London-based Worldpay Group for $10 billion, creating the world's largest payment processing company. The newly formed company, dubbed Worldpay Inc. (WP), is still headquartered in Cincinnati, Vantiv's old home, but smartly took Worldpay's name and is now using the legacy Worldpay's London headquarters as its international base. The acquisition was formally completed in January.
When the company reported its first-quarter earnings, it continued the momentum it established in its first quarter as a combined entity, by recognizing cost synergies and raising its full-year revenue and earnings guidance. The company reported net revenue of $915 million, a 12% increase year over year on a pro forma basis. In this instance, using a pro forma basis shows what revenue growth would have been if the two companies had been together last year. Worldpay's earnings per share rose to $0.81, a 19% increase year over year.
What drove this top- and bottom-line growth? After reading through the company's conference call, two advantages of the newly combined company stand out: the cost synergies it can recognize from the acquisition and its true global presence.
When coupling up saves on costs
For the quarter, Worldpay management stated it had already recognized $10 million in cost synergies, more than the company had expected so soon out of the gate. CFO Stephanie Ferris credited the savings to "the elimination of duplicate public company costs and other overlapping corporate overhead expenses." Co-CEO Charles Drucker added, "Our integration is progressing very well and I'm highly confident in our ability to continue to achieve our projected synergies."
The best part, according to management, is that this is just the first wave of many expected savings to be realized over the remainder of this calendar year and next. By the end of the first half of 2019, Worldpay plans to have all its U.S. clients on the same payment platform, a move that will help it achieve the majority of its synergies. Drucker said this process had already begun but that this summer would see the "first wave of full-scale client migration." He added the move was being made merchant by merchant and that the two legacy companies had also merged their U.S. salesforce into one team.
A worldwide presence
The other thing that stands out is the company's huge scale compared to most other payment processing companies. Co-CEO Philip Jansen noted the advantage this gave the newly formed company:
[T]he global payments market is huge and growing rapidly as electronic payments continue to steadily replace cash and checks worldwide. Individually, we started off as leaders in the U.S. and Europe. New Worldpay is uniquely placed to benefit from increased globalization with an unrivaled geographical footprint in the rest of the world. Together, we are the leading global acquirer, giving us the ability to benefit from secular expansion in the entire worldwide market. ... The primary way that we will do this is e-commerce and mobile, which is also fueling the second wave of growth in payments.
Several of the new deals the company announced had an international flavor. For instance, Next, a U.K.-based clothing and home goods retailer, operates 700 locations across the globe, and Marston's is a British pub chain with 1,500 locations across the U.K. The company also extended its deal with Domino's Pizza.
The company's size also boosts margins. Ferris said, "As a result of our significant scale, we enjoy operating leverage and inherent cost efficiency." Management was also eager to point out that the company's size would give it more leverage when approaching vendors for future deals.
A world of possibilities
Using the midpoint of the company's full-year guidance for earnings of $3.76 per share, the stock is currently trading at a forward P/E ratio of 21.4, slightly below the S&P 500's average valuation. Given the company's earnings growth of 19% this quarter, that's a fairly attractive value in a bull market getting long in the tooth. When the company's expected cost synergies and the advantage its scale gives it to reach a global customer base are considered, the company seems a good bet to beat the market going forward.