Visa, excellent results, going places

One of our best performers in New York, Visa, reported first quarter earnings. It seems like such an obvious story. Carrying cash is a liability of sorts, some people want to steal it. It makes life so much easier and safer to pay electronically. The people want it, governments want it because it makes it easier to collect taxes but the majority of transactions still take place in cash, especially in the developing world. That is why Visa's strategy is to get half of their revenue outside the US by 2015. $9 trillion of card spending is expected in the Asia pacific region in 2016. That is 42% of worldwide card spend. Visa are certainly targeting growth in that region.


Let's take a look at the numbers. Revenue grew 12% to 2.85bn versus expectations of R2.8bn. Operating earnings per share came in at $1.94 (30% growth) versus forecasts of $1.79 although 11c of that came from a tax benefit. Earnings for the full year are expected to come in at $7.46. The stock trades at $158 or 21 times 2013 earnings. Is it expensive? I remember in 2011 when it was trading at $70 and people called the stock expensive because it was trading at a multiple of 16. Looking back the stock was actually trading on less than 10 times 2013 earnings. Payment volume for the quarter equated to a whopping $1.1 trillion


Of course this does not mean that future growth is going to be at the same pace. But like I mentioned earlier there is still so much room for growth as the world adopts electric payments. I am sure you experience the shift in your everyday lives. I barely pay with cash anymore and in fact my bank, FNB rewards me with eBucks if I swipe my card. Cash is as much a liability to the individual as it is to the bank. Moving physical money around is a dangerous, expensive process. Electronic transfers between banks is just so much easier.

To get a perspective of where the growth comes from let's look at sales regionally. Of the volume processed by Visa the US was responsible for 38%, this grew 2.7% for the quarter. Asia pacific contributed 25% which grew 11.9%, CEMEA (Central and Eastern Europe, Middle East and Africa) contributes 16% and grew 20.1% and LAC which is Latin America contributed 15% and contracted 2.7%.


We still see this stock as great entry into the developing market which will grow as the developing market consumer grows. It will also grow as we shift our spending patterns. They are innovative and at the forefront of payment technology. It is priced for growth but we expect it to remain at this valuation as the share price grows with earnings.