Stock Spotlight: FIS

FILMED IN DECEMBER 2025

For more than 50 years Fidelity National Information Services (FIS) has endured as one of the leading essential financial technologies provider, connecting merchants, banks, and capital markets. Andrew wellington explains why the stock is one of Lyrical’s favourites.

Transcript

I'm Andrew Wellington. I'm the founder and chief investment officer of Lyrical Asset Management and this is why I'm picking Fidelity National Information Services for the Alliance Witan portfolio.

Fidelity National is a leader in core bank processing software which enables banks to manage critical operations including account management, transaction processing, record-keeping and regulatory compliance. You can think of this technology as the operating system or the plumbing of a bank. Fidelity National is the leading provider of core processing to large US banks commanding 60% market share. One of their key growth strategies is to expand their relationships with clients through cross-selling additional solutions. In fact, Fidelity National’s banking clients, on average, utilise 26 different products from the company.

Additionally, beyond core processing, they also provide capital market solutions such as treasury and risk management for companies such as asset managers, lenders and insurers.

There are three things that make Fidelity National's industry attractive. First, core bank processing technology is mission critical for financial institutions. These solutions are deeply entrenched into client operations, leading to very sticky relationships. In fact, the company maintains a 99% customer retention rate. Bank executives characterise the process of changing core processing technology as the most challenging and expensive IT project a bank can undertake. One executive even described the process as trying to perform a heart and lung transplant at the same time.

The second attractive thing about the industry is that core processors are resilient through an economic cycle. Their revenue is driven more by the number of banking accounts and less by the number of transactions.

Finally, the third attractive thing is the sheer size of the market. The US banking market has about double the number of banking institutions as Europe. That high level of fragmentation sets a backdrop of continued consolidation which would benefit large bank core processors and their customers as their customers gain market share.

We think Fidelity National's business has several attractive characteristics. As a software business, the company requires little capital to operate and generates high operating margins. Being very profitable and capital light results in ample free cash flow every year, which they consistently have returned to shareholders. The company also has been a consistent grower, steadily growing revenues at a 5% organic rate over the past decade. And lastly, 80% of Fidelity National's revenues are recurring, making it a resilient business.

This resiliency was demonstrated in two prior recessions and the recent banking crisis wherein all three periods of stress the company's revenues were stable. Those are some of the reasons why FIS is an attractive company. But what makes it an attractive stock is valuation. The stock is valued at only ten times forward earnings per share, which is less than half the valuation of the S&P 500, even though Fidelity National is growing much faster.