Fiserv's Lone Bear: 26-Year-Old Analyst Explains His Call Before Huge Selloff

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00:00The loan analyst with a sell rating on Fiserv ahead of the company's crushing stock sell-off

00:06says the writing was on the wall for months. Rothschild analyst Dominic Ball says he still

00:12has the sole sell rating on Fiserv. We can see that on the Bloomberg terminal using the ANR

00:18function. When he downgraded the stock earlier this year, he cited issues with its Clover

00:23product, a point-of-sale system, writing financial solutions is decelerating and so

00:28the issue seems more systemic across Fiserv. And guess what? We are lucky enough to get

00:34Dominic here in the studio. He's been touring the U.S. and happens to be in New York. So

00:39perfect timing on both your call and the visit. I guess you've had this sell rating on the stock

00:48for a while and it's actually down 70 percent since you put it on. And most people, most analysts won't

00:53say sell. In fact, only five percent of all the ratings on the Bloomberg terminal, which has, you

00:58know, all the ratings, only five percent of analysts feel comfortable putting a sell rating on. Why do

01:04you do it? Yeah. Well, thank you for having us on to begin with. I think it's really the company I

01:09work for Rothschild and Kareb, and we do a lot more long-form deep-dive industrial work. When I initially did

01:16work on a pair of Clover, which is owned by Fiserv called Toast, it was six months deep-dive research.

01:22And that really gives us a ballast of our view and allows us to have high-conviction views.

01:27Did you have any clients push back initially when you had that buy signal? And what have they said

01:33since the big drop in prices? Yeah, I mean, I think before Q1 for Fiserv was where there was the

01:39most contention. Fiserv was seen as the third payment company to own after the card networks.

01:47And so when you come out with quite a contrarian view, there's a lot of questions, of course.

01:52It went our way Q1 quite quickly, then it went our way in Q2, then it went our way again in Q3.

01:57And so a lot of investors just come in to us asking what is actually happening and where do we go from

02:02here? Great story on the terminal by George McKay and Matt Turner, in which you say also that

02:09management has really focused too aggressively on Clover because there's problems there and

02:14underinvested maybe elsewhere. What's the future, you think, of the stock? What's the future of this

02:20company? Look, it's a really tough position that they're in. Payments has a lot of technological

02:25change that's ongoing. In the last six months, we've seen Argentic Commerce and Stablecoins kind of

02:29come out of nowhere. And it's tough for a company that has grown through M&A to try and consolidate

02:38and focus an R&D budget on new tech. And so peers like Toast that have a single tech stack we really

02:45like. It allows them to have the focus in terms of serving a sole vertical but also in that R&D budget

02:51to do well. You also notably have a sell rating on global payments. You're one of only two analysts

02:57who have a sell rating, which is only 6% of the people who cover it. Why are you bearish on global

03:02payments? And by the way, I think a lot of people are going to take a second look at your sell rating

03:05now. Yeah. Again, global payments and Pfizer are similar when it comes to the ability in their

03:12history. They've done a lot of M&A. In payments, we've seen WorldPay, FIS, Nexi, global payments and

03:20first data and Pfizer. They've all done large-scale acquisition. And again, as I mentioned,

03:24it's really difficult to innovate and change with this new tech when you've done a lot of M&A.

03:29And so we hope, and it seems like with a company like Pfizer, they're going to materially invest

03:33in the company. That was why there was such material EPS downgrades. And so that's what they

03:39can do going forward. We're in an earnings season now where 80% of companies are beating estimates.

03:45And that sounds like a high number, but it's really not unusual. Analysts tend to do what

03:51management wants them to in order to maintain access. It's understandable. Do you find with

03:57your sell ratings that you're locked out? Or is it more difficult for you to do your job?

04:03No. Again, going back to where I work, it's a very unique place, Rothschild & Co. Redburn.

04:08We do deep-dive industrial work. We don't typically write about the quarter, which is what every other...

04:15Or rely on management to give you guidance. It's what every other investment bank does.

04:19We write, as I mentioned, when we came out with total Pfizer, these are 100, 200-page reports.

04:24And it allows us to look beyond the quarter, you know, into 25, 26, 27. And then it allows us,

04:29when we do get a lot of pushback from investors, which is always natural, to give us a high-conviction

04:33review. Because we've done so much work on the companies.

04:38So of all the payment companies that you cover, which is your top pick right now?

04:41We love Toast. Toast is a fantastic company. The moat is materially underrated. People see it as

04:48similar to Clover and Pfizer. It's materially different. Their ability to win restaurants at a

04:54market share rate they're doing right now is phenomenal. Everyone keeps betting for them to slow

04:58down, and they're not doing so. It's a company that can easily grow low 20s easily. We have 1,000

05:05pace points higher than that, with 35% margins, and trades that 20 times to your four non-gap PE.

05:10If you put that in a software company, it trades that three times the multiple.

05:14So Toast is a materially underappreciated stock. We really like Toast.

05:16It's doing, I mean, over the past five years, and I always look at a five-year period, because it's the

05:21default for the comp function on the Bloomberg. But it's down 14%. Now, it's not doing as poorly

05:27as Fiserv, obviously, which over the same period is down 40%, and global payments at the same period

05:33down 50%. But what kind of appreciation do you expect from Toast?

05:37Yes, we have a target price of $60. We came out being incredibly bullish when it was at $15. It's

05:42now at roughly $35. And Toast IPO in an environment of 0% interest rates, and we've gone to 5%. So the

05:51multiple, a lot of these companies have derated. When you look at the earnings and EBIT data, it has

05:55compounded materially. They had 0% EBITDA margin. They've scaled to 35% within 18 months, while still

06:02adding more locations for their restaurants than they've ever done before in a single year. It's a

06:08fantastic company. And our deep dive on Toast was really the, allowed us to then look at Clover and

06:14competitive companies. And that's really where we came up with our sell rating on Clover and Fiserv and buy on Toast.

06:20So, let's get to it.

06:27All right.

06:29We'll see you next time.

06:31Bye-bye.

06:32Bye-bye.

06:36Bye-bye.

06:40Bye-bye.

06:41Bye-bye.

06:43Bye-bye.

06:44Bye-bye.

06:45Bye-bye.

06:47Bye-bye.

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