Research archive for V

Our top client holding, by the number of holders, remains fund transfer processor Visa. The San Francisco-based corporation employs just 15,000 people but has a market capitalisation of $300 billion.

This opinion piece in the Motley Fool comparing Square and Visa made some interesting points. First and foremost it estimates that consumers globally still spent over $17 trillion with cash and cheques last year. That right there is the opportunity.

Visa is our biggest holding in New York and has done incredibly well. In 5 years the share price is up 212%. But this does not mean we must become complacent and expect it to continue to thrive. The competition for electronic payments is heating up, and many merchants are tired of absorbing swipe fees.

On Wednesday evening after the market closed, our biggest US holding, Visa reported earnings. Over the last 12-months, the stock is up 40% and over the previous 5-years it has tripled in value.

On Thursday night Visa released their second quarter results for 2018. It was another good 3 months for the company. Revenues increased 13% whilst earnings per share increased 30%.

I get the hype around Bitcoin and blockchain technology. The notion of an unregulated, fee free, community-based network sounds great. The problem is people will always misbehave. It is human nature. Even more importantly, governments need to track payments so that they can gather taxes. No one likes paying taxes, but they are very necessary. Yesterday India expressed a will to regulate cryptocurrencies. Can you blame them? They have been working exceptionally hard to eradicate a cash based society in order to track payments and raise taxes. If Bitcoin went mainstream with no regulation, then that would have been in vain.

Last week Visa reported their 4Q and full year numbers, beating market expectations on the top and bottom line. Reading through their earnings call, it is amazing to see the insights that they get globally, thanks to seeing spending changes. They have noticed a spending drop off in areas hit by recent natural disasters. More developed regions spending returned to normal in a shorter period when compared to less developed areas. Another thing they pick up is the impact of currency changes on spending and travelling. Speaking of travelling, they saw a 10% rise in the number of cross-border transactions; high margin business for them and good news for our investment in Priceline.

Visa inc. reported their third quarter results for the period to end 30 June. It was a beat by most metrics, the business reported net income of 2.1 billion Dollars, or 86 US cents per share off revenues of 4.6 billion Dollars. Remember that Visa Europe is now fully integrated into group, payments volumes increased a whopping 38 percent to 1.9 trillion Dollars. 28.5 billion transactions in total. During the quarter, the group also returned 2.1 billion Dollars to their shareholders, by way of dividends and share buybacks (59.2 million shares bought back at an average of 86.82 for the last nine months). There is still 5.5 billion Dollars available for repurchases inside of the current program, or roughly two and a half percent of the current market capitalisation.

"Visa has recognised the net benefits for merchants when they reduce dependency on cash transaction. Visa recently conducted a study that found that if businesses in 100 cities transitioned from cash to digital, their cities stand to experience net benefits of $312 billion per year. According to this study, in New York City alone, businesses could generate an additional $6.8 billion in revenue and save more than 186 million hours in labor, by making greater use of digital payments. This amounts to more than $5 billion annual costs savings for businesses in New York."

Last week we had market beating numbers from Visa, this was for their (Fiscal Second Quarter 2017 Key Highlights). Here are the numbers quickly, Revenue of $4.48 billion growing at 23% (expectation was $4.3 billion), Adjusted Net income of $2.1 billion which translates into EPS of 86c growing at 27% (expectation was for 79c). The market has come to expect outperformance from Visa, the stock is only slightly up (less than 1% as I look at it) after these results. Even though popping share prices are exciting, not much movement in the price after a good set of numbers means that all of a sudden you can by the same stock at a cheaper valuation.

Visa takes you places. It is far easier than at any time to access your funds, no matter where you are. It is difficult to believe that the first ATM turns 50 this year, it is known that cash is still used amongst many, see the recent crisis in India with the notes removal from circulation to know how many people are completely reliant on the physical "stuff". I recall recently ABSA working with Visa to integrate fingerprint technologies on their ATMs (Visa testing biometric verification). Cash remains, electronic transactions and the associated technologies are on the rise, replacing the old methodologies. You will recall from the piece that was included in links the other day about "money" that cowries (the beautiful shell) used to be a means of currency in wide parts of our continent, see - Shell money.

Visa reported numbers after market two nights back. These are for their fourth quarter and the year end. First, as always, a little perspective on what they (Visa) do. Last year, 2015, they processed 71 billion transactions on 2.4 billion cards. That means that roughly every third person on the planet has one Visa embossed card. 7.4 trillion Dollars worth of merchandise was bought on Visa cards last year. Whoa! Forget the fact that cash will become increasingly irrelevant, so will the physical cards themselves. You will increasingly use nifty technological options to pay for goodies. And there will be and are many growth opportunities globally, for instance in the prior year annual report, this line caught my eye:

Visa announced a CEO succession plan, indicating that CEO Charlie Scharf would resign as he cannot commit 100 percent to spend the time in San Francisco. What the hell? Does he not like catching the tram or something? Does staring at Alcatraz give him the heebie-jeebies after watching that dumb movie with the green balls and Nicholas Cage? Is he a cyclist or runner and the hills are getting him down? Or is the family life taking strain and the commute too much? Whatever the reason, Alfred F. Kelly, Jr. (not related the Alfred E. Neuman) will assume the reigns of what is an incredible opportunity for him personally. A 23 year veteran of American Express, Kelly was in charge of Global Consumer and Consumer Card Services groups. Yes. Kelly is currently a board member at Visa, the company and the culture is nothing new to him. Scharf will deliver results for the last time next Monday evening. Look out for those sports lovers. I personally cannot wait.

Visa takes you places. Visa will be in your face over the coming weeks as a Worldwide Olympic Partner, those are two weeks away sports lovers. An amazing thing really, the Olympic Games, this one will of course be no exception. Equally, Visa is an amazing company. Their ability to run a network that will switch your transaction in a single swipe, regardless of whether you are in any of the major cities of the world and regardless of where your bank is. The fact that there can be guaranteed payment to the merchant, no cash ever exchanges hands and your risks are greatly reduced, that part you just take for granted. We don't even bat an eye.

Visa reported numbers last evening. This is one of the most exciting companies to own. And the thesis is pretty simple really. The fact that we are moving towards a cashless society with more speed and momentum than at any time in history means that this company will continue to be the beneficiary of a move away from physical currency. It is amazing to think that in an internet covered world, people still use physical cash as much as they do. I saw just the other day that the German finance ministry was mulling whether to put a cap on the Euro value of any transaction, 5000 Euros would be the maximum on a cash transaction. We often say when looking at Visa's business that governments, tax authorities, banks and financial institutions would prefer this type of ability to monitor all transactions, and thereby making the transportation networks and security carrying costs of cash obsolete. Of course not everyone has a cell phone and debit/credit card.