Fiserv Inc

Fiserv (FISV) continues to face issues with its Clover product, a cloud-based payment platform, which has caused decelerating growth. This has raised concerns about the company's ability to maintain its competitive advantage in the financial technology sector. As a result, the Fund has decided to reduce its exposure to Fiserv, reflecting a lack of confidence in its future performance.

We purchased one new position during the quarter: Fiserv Inc. Fiserv Inc. is a company we have successfully owned multiple times in the past. It is a global payments solutions and financial services provider. The business consists of two segments: merchant solutions and financial solutions. Each of these segments provides essential products and services to its customers. Fiserv’s products have high switching costs, which aids in customer retention and increases the stickiness of their revenue. The company expects to generate over $5 billion of free cash flow this year. The company is using its free cash flow to repurchase its discounted shares, which increases our value per share growth. Fiserv stock has declined meaningfully since we sold it earlier this year. Our value has remained stable. We are pleased to be able to own this wonderful business with a substantial margin of safety once again.

Fiserv is an American company and one of the world’s largest providers of financial technology infrastructure, operating in over 100 countries. Its business model combines scale, diversification, and high barriers to customer turnover, serving thousands of financial institutions and millions of merchants with long-term contracts. Despite a recent share price decline due to high expectations and a cut in revenue growth outlook, the long-term growth trend in profitability remains intact. At 13 times this year’s expected earnings, there is a significant difference between the price and intrinsic value, making it an attractive investment opportunity.

In the third quarter, we added to our position in Fiserv, reflecting our confidence in its business performance and valuation. The LCV portfolio’s companies, including Fiserv, are performing well, and their valuations remain attractive. All of our companies beat earnings estimates in the most recent quarter, indicating strong operational performance. We believe Fiserv is well-positioned to navigate market volatility and continue delivering value to shareholders.

Fiserv’s multiple took another hit after the company reduced their organic growth outlook for the year, citing macro conditions and some delays in new product uptake and customer implementations. This reduction in growth expectations has raised concerns about the company's ability to maintain its previous performance levels, leading to a reevaluation of its position in the portfolio. Given these challenges, we have decided to reduce our exposure to Fiserv.

Fiserv’s shares sold off in the quarter due to concerns over modest volume growth at its Clover payment processing unit. However, we believe the slowdown at Clover is due to transitory factors and that growth will pick back up. Fiserv’s other businesses are performing well, indicating the overall strength of the company despite the temporary challenges faced by Clover.

We added to Fiserv during the quarter. In May, Fiserv reported slower growth for its Clover payment processing business – Clover is one of several portable terminals that you may have seen restaurants use to process credit card payments. Fiserv is one of the most durable growth stories of the past four decades, having grown earnings by at least 10% for 39 straight years. It acts as the primary technology provider to several thousand regional banks. Even with temporarily slower growth from Clover, Fiserv should grow earnings about 15% this year, to roughly $10 per share. The current price is just over 14x next year’s earnings estimate in a market that trades for more than 20x forward estimates.

We see Fiserv as a leading core processor that is well-positioned to leverage the growing interest in stablecoins. The launch of FIUSD, a new digital asset/stablecoin platform, demonstrates Fiserv's proactive approach to integrating innovative solutions for its financial institution clients. While stablecoins present opportunities, we believe that traditional card-based payments will continue to offer unmatched benefits, such as built-in credit and consumer protections, which stablecoins cannot replicate. This positions Fiserv favorably in the evolving payment landscape.

Fiserv’s shares sold off sharply in the quarter due to a slowdown in volume growth at its Clover payment processing unit. However, we believe the slowdown at Clover is due to transitory factors and that growth will pick back up in the latter part of 2025. Fiserv’s other businesses are performing well, indicating a strong underlying business that supports our positive outlook.

Fiserv was the top detractor due to a deceleration in growth within their Clover business unit but remains a resilient position as we believe they are well positioned to continue their long-term track record of double-digit earnings growth.