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Total System Extends Buyback

TSS MA

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Yesterday, the board of Total System Services Inc. (TSS - Analyst Report) approved and authorized the extension of its stock repurchase program to 15 million shares from 10 million shares. The company had bought back 2.0 million shares of its common stock under the share repurchase plan. Including the existing program, 9.9 million shares currently remain available for repurchase.   

Additionally, the company has also extended the expiry of the total share repurchase program to April 30, 2013. Total System has repurchased about 5.0 million shares in the past three quarters.

Although the approval is effective immediately, the buyback of its class A shares will be held periodically through open market operations, depending on market conditions.

Last month, MasterCard Inc. (MA - Analyst Report) had also sanctioned the extension of its stock repurchase program to $2 billion from $1 billion. Until April-end, MasterCard has already bought about 3.9 million shares for approximately $1.0 billion since September 2010.

Acquisition of TermNet

On Monday, Total System announced the acquisition of Atlanta-based merchant acquirer, TermNet Merchant Services, which is the 52nd largest merchant acquirer in the U.S. by dollar volume, according to The Nilson Report. However, the pricing of the deal remains undisclosed.

With an operating history of 25 years, TermNet will help Total System to expand its merchant acquiring services to more than 327,000 merchant locations around the U.S. Accordingly, TermNet will now be completely merged with Total System Merchant Solutions. Lately, the company had fully acquired First National Merchant Solutions LLC (FNMS) and renamed it as TSYS Merchant Solutions (TMS).

Earnings Recap

Last week, TSS reported first quarter operating net income of $48.8 million or 25 cents per share against $51.8 million or 26 cents per share in the year-ago quarter. However, earnings per share were in line with the Zacks Consensus Estimate.

Total revenue for the reported quarter was $429.4 million, up 3.9% against $413.5 million in the year-ago quarter. However, this was a tad lower than the Zacks Consensus Estimate of $431.0 million.

The results reflected continued weakness in North America services and higher-than-expected cost of services and selling, general and administrative (SG&A) expenses that also led to the decline in earnings. These were partially offset by increased same client transactions, lower taxes and slight improvement in overall transaction volume.

Although the complete acquisition of TMS and expansion into merchant acquiring services is expected to drive growth, sole dependence on it could be risky for long-term growth. In addition, we do not foresee any other substantial development strategy to drive earnings in the near future.

However, we expect Total System to benefit from the improving economy and generate healthy cash flow to achieve the guidance for 2011. This would also help the company to consistently deploy capital through stock repurchases and dividends, thereby retaining investors’ confidence and market share.

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