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A leading provider of banking and payments technology, Fidelity National Information Services Inc. (FIS - Analyst Report) was recently selected by Woolworths Ltd. to provide prepaid card processing services including card acquisition and transaction processing.

Woolworths is a renowned merchant operating in various sectors including supermarkets, petrol, liquor, general merchandise, hardware, consumer electronics, hotels and pubs in Australia and New Zealand.

Woolworths, through its financial services division offers credit cards, ATMs, gift cards and general-purpose prepaid cards. Fidelity currently processes more than 250,000 prepaid cards for Woolworths.

We believe the new partnership will allow Fidelity to penetrate further in the growing markets of Australia and New Zealand. Fidelity currently supports prepaid cards in 34 countries and 16 currencies, with annual transactions of approximately 775 million.

Global expansion has been one of the key growth strategies for Fidelity in the recent years. Fidelity remains focused on developing its footprint in the emerging economies of the Asia-Pacific and thus added a number of clients in China and Singapore in 2010.

In Australia, the company expanded its product portfolio, which currently includes core-processing services. ANZ, one of Australia's largest banking groups, is in the process of consolidating its New Zealand subsidiaries to Fidelity’s core platform.

Fidelity is providing card processing services in the region since 2001 and it is noteworthy that Fidelity is currently the leading third-party card processor in Australia.

Besides Asia-Pacific, Fidelity continues to gain significant market share in the growing Latin American economies, particularly Brazil. Fidelity is processing the newly launched ELO branded credit cards issued by Banco Bradesco, one of Brazil’s largest private commercial banks.

Fidelity will also process ELO branded prepaid cards, which are scheduled to launch in June, 2011, reflecting further revenue growth potential going forward.

These growth initiatives in the overseas market positively impacted International revenue in the first quarter of 2011 ended March 31. International revenue increased 48.6% year over year to $268.0 million in the first quarter (27.5% organic growth).

We believe Fidelity’s increasing international exposure particularly in the emerging economies will consistently drive top-line growth over the long term.


We maintain our Neutral rating on a long-term basis (for the next 6 to 12 months), primarily due to increasing debt and intense competition from Fiserv Inc. (FISV - Analyst Report), International Business Machines Corp. (IBM - Analyst Report), Accenture Plc (ACN - Analyst Report), Alliance Data Systems (ADS - Analyst Report), MasterCard Incorporated (MA - Analyst Report) and Visa Inc. (V - Analyst Report).

Increasing consolidation in the banking sector, a challenging environment for the Payments Solutions business and an uncertain regulatory environment are the primary business headwinds in our view.

However, Fidelity’s commanding position in the financial services market, increasing international exposure, recurring revenue model, cost synergies from acquisitions and a loyal customer base will drive growth over the long term.

Currently, Fidelity has a Zacks #3 Rank, which implies a Hold rating in the short term (1-3 months).

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