Cryder Capital Partners Is Betting Big on Payment Processing Companies

The slump in the broader market at the beginning of 2016 provided investors with an opportunity to enter the stocks of their liking at a suitable valuation and increase their stakes in the company they were already bullish on. One of the hedge funds that seem to have capitalized well on this opportunity is Ferdinand Groos‘ Cryder Capital Partners LLP. The London-based fund has submitted its 13F filing with Securities and Exchange Commission (SEC) for the first quarter, revealing a US equity portfolio worth $130.66 million. According to the filing, Cryder Capital Partners LLP increased its stake in nine of the 11 stocks that it held at the end of 2015 and reduced its stake only marginally in its remaining two holdings. An interesting and important detail that emerged from the filing was that Cryder Capital Partners LLP boosted its stake in nearly all the companies in its portfolio that are engaged in payment processing. Taking that into account, in this article, we are going to focus on four such payment processing companies in which the fund increased its stakes and will also be discussing its top stock pick at the end of first quarter.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

Visa Inc (NYSE:V)

– Shares Owned by Cryder Capital Partners LLP (as of March 31): 103,305

– Value of Holding (as of March 31): $7.9 million

First up is Visa Inc (NYSE:V), in which Cryder Capital Partners LLP increased its stake by 7% during the first quarter. Shares of the payments technology giant saw a decent rally recently in anticipation of the company’s first quarter results, making their lifetime of $81.73 in the process. However, they have given up some of those gains after the company reported its quarterly results and currently are trading down by 1% year-to-date. Though the EPS of $0.68 on revenue of $3.60 billion Visa Inc (NYSE:V) reported for the quarter was slightly above analysts’ expectations, its forecast of revenue growth of 7% to 8% and profit growth in a low double-digit range for full fiscal 2016 came below the Street’s estimates. Following the earnings release, analysts seem to be divided about the future prospects of the company. While some analysts argue that the stock is expensive at current levels considering the sub-par growth of the company, others feel that the stock will continue its multi-year bull run owing to the numerous tailwinds the company enjoys. Among the hedge funds that trimmed their holdings in Visa Inc during the first quarter was Billionaire Ken Fisher‘s Fisher Asset Management, which reduced its stake by 1% to 14.78 million shares.

Mastercard Inc (NYSE:MA)

– Shares Owned by Cryder Capital Partners LLP (as of March 31): 83,897

– Value of Holding (as of March 31): $7.93 million

Just like Visa Inc, Cryder Capital Partners LLP also increased its stake in Mastercard Inc (NYSE:MA) by 7% during the first quarter. Another fund that increased its stake in the company during the same period was Barry Dargan‘s Intermede Investment Partners, which boosted its holding by 41% to 446,054 shares. Mastercard Inc (NYSE:MA)’s stock fell heavily at the beginning of 2016, but it has managed to recoup most of those losses since then and currently trades down 2.52% year-to-date. On April 28, the company reported its fiscal 2016 first quarter numbers, declaring EPS of $0.86 on revenue of $2.45 billion for the quarter versus analysts’ expectations of EPS of $0.85 on revenue of $2.38 billion. Even though the company managed to beat earnings and revenue estimate quarter, some analysts feel Mastercard Inc’s stock will struggle to break past the $100 mark as it is already trading at a premium to its fair value. On April 29, analysts at Wedbush reiterated their ‘Neutral’ rating on the stock, but upped their price target on it to $99 from $92.

Alphabet Inc (NASDAQ:GOOG)

– Shares Owned by Cryder Capital Partners LLP (as of March 31): 10,990

– Value of Holding (as of March 31): $8.38 million

Though Cryder Capital Partners LLP increased its stake in Alphabet Inc (NASDAQ:GOOG) by 13% during the first quarter, it also reduced its stake in the class C stock by 13% to 9,262 shares, valued at $6.9 million, as of March 31. Shares of Alphabet Inc (NASDAQ:GOOG) have slumped recently after the company failed to repeat its stellar quarterly performance in the previous two quarters during its fiscal 2016 first quarter. While the Street had expected the company to report EPS of $7.96 on revenue of $20.37 billion, Alphabet declared EPS of $7.50 on revenue of $20.26 billion for the quarter. Owing largely to the recent decline, Alphabet’s stock is currently trading down by 7% year-to-date. An interesting detail that emerged from the company’s latest quarterly results was that the revenue from its Other Bets Segments, which includes Google Life Sciences, Google X, Nest and other moonshot projects, doubled year-over-year to $166 million. However, that segment still accounted for an operating loss of $802 million during the quarter.

Alliance Data Systems Corporation (NYSE:ADS)

– Shares Owned by Cryder Capital Partners LLP (as of March 31): 78,422

– Value of Holding (as of March 31): $17.25 million

Alliance Data Systems Corporation (NYSE:ADS) is another card and payment services company in which Cryder Capital Partners LLP increased its stake during the first quarter, by 46%. Alliance Data Systems Corporation (NYSE:ADS)’s stock fell in January on the back of dismal fourth quarter numbers and is yet to recover from that slump as it has lost 27% year-to-date. For its fiscal 2016, the company reported EPS of $3.84, beating analysts’ estimate by $0.01, and revenue of $1.68 billion, missing Street’s projection by $10 million. Following the earnings release, on April 22, analysts at Pacific Crest  lowered their price target on the stock to $250 from $300, while keeping their rating on it unchanged at ‘Overweight’. On April 28, CNBC’s Jim Cramer recommended Alliance Data Systems Corporation’s stock as a ‘Buy’ at current levels on his show ‘Mad Money’. According to Mr. Cramer, the stock has been struggling lately, but the company is in a better shape than its stock price indicates. Charles Paquelet‘s Skylands Capital was another hedge fund that increased its stake in Alliance Data Systems Corporation during the first quarter, by 14% to 4,225 shares.

Westinghouse Air Brake Technologies Corp (NYSE:WAB)

– Shares Owned by Cryder Capital Partners LLP (as of March 31): 226,004

– Value of Holding (as of March 31): $17.92 million

Finally, an 11% increase in Westinghouse Air Brake Technologies Corp (NYSE:WAB)’s stock during the first quarter coupled with Cryder Capital Partners LLP increasing its stake in the company by 27% during that period, helped Westinghouse Air Brake Technologies Corp (NYSE:WAB) to jump four spots quarter-over-quarter and become the fund’s top stock pick at the end of March. Even though the company reported mixed results for the first quarter on April 26, its shares spiked up nearly 8% over the next two days following the earnings release and has gained 10% year-to-date. While the Street was expecting EPS of $1.00 on revenue of $801.2 million, Westinghouse Air Brake Technologies declared EPS of $1.05 on revenue of $772.03 million. The 13 prominent analysts and research firms that track the stock currently have an average rating of ‘Overweight’ on the stock and an average price target of $92.40.

Disclosure: None