Visa takes you places, or so the strap line goes. Visa has also taken their shareholders places, mostly always good ones. Why do we like this company? It is pretty simple, the investors relations landing page (do we still call them that) obviously describes the company better than I ever could:
"Visa is a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks."
Why would digital payments be better for everyone? Firstly it is safer for the user, there is no need to carry cash. Eliminating cash eliminates the need for expensive security associated with the handling cost. In South Africa we have seen the familiar sights of armed men in bullet proof vests standing thirty odd metres from heavily armoured trucks carrying money. No physical currency = lower security = cheaper banking costs. Consumer wins.
Checks are obviously a distant memory here, but are widely used in Europe and North America. Notwithstanding that there is relatively high check payment usage, the payment method is jurassic (hunting in packs and feathered apparently - another story) and dated. Doomed to extinction in my lifetime no doubt.
Lastly, the folks under most pressure for revenue collection, governments globally would love to see only electronic payments methods, there would be a trail. Not a paper one but a more easily traceable electronic one. Crime and cash go together, eliminating the use of cash would also be better for broader society too.
Ironically by owning Visa you are encouraging the usage of safer transfer methods and promoting compliance, doing good.
Doing good is one thing, investing your hard earned money and getting an acceptable return is more important to our readers as blunt as it may sound. We invest our money to make money. If we happen to do good alongside, that is an added bonus.
Is Visa a good company to invest in then? Let us first have a look at their third quarter results to end June 2014.
Net income increased 11 percent to 1.4 billion Dollars off of operating revenues of 3.2 billion Dollars. You do not need to be especially good at math to realise that is a fabulous margin business. On an EPS basis the company earned 2.17 Dollars. The quarterly dividend for the current financial year is 40 cents, US of course. Operating expenses fell 3 percent, margins expanded 300 basis points to 64 percent, that is fabulous.
The company during the period bought back 5.6 million shares at an average price of 207.13 Dollars, using 1.2 billion Dollars of shareholder money. That is over a percent of the shares bought back during the quarter, no mean feat. 3 billion in total this financial year, the company noted that they will buy more shares as they see fit. There is 1.9 billion Dollars available in the current share repurchase program, about 1.5 percent of the current market capitalisation.
There were some "issues". As per the conference call (courtesy of SeekingAlpha -
Q3 2014 Results Earnings Conference Call), from the prepared remarks of the CFO Byron Pollitt:
"For the June ending quarter, the sequentially downtick of 1 percentage point in cross-border was broad-based and spread across China, Russia, Ukraine, Venezuela, Argentina and the Middle East as you might expect, given political tensions and the early on-set of Ramadan."
Russia remains a problem not only for the company and the people that live there, but for all of us. The cross border transaction volumes were a 15 year low, some countries cracking down on externalisation of their currencies after precipitous falls. Byron has some juicy stories about the wonky economic policies in Argentina and how it leads to black market rates and official rates for the local currency. Sigh.
Digital payments, what about that? Who is going to be the winner in all of this? I suspect that Visa and their competitors will evolve to continue to process the transactions from the traditional physical to the digital world. On the conference call, CEO Charles Scharf, thanks again to SeekingAlpha and the above link. We have to thank them, that is part of the deal!
"First of all, there is a lot of clutter in the market about who is doing what in the digital payment space. It can be confusing for sure. We have a very specific point of view and a set of strategies here. Simply put we are keenly focused on achieving the same success in the digital world that we have had in the physical world. .... As in the side our card not present volumes today are growing three times as fast as card present which we feel is still just a fraction of the opportunity in this space."
The company is enabling many more partners. Visa is opening a innovation center in San Francisco to enable new and old partners to sit side by side to promote and create payment methods. They are investing in smaller companies to help them keep up with innovation. Visa Checkout is more easily usable on both mobile and web through newer published APIs and SDKs. Huh? An API is an application programming interface. A SDK is a software development kit. Electronic payments through ecommerce, Visa being one of the preferred payment technologies.
The guidance given was a little lighter than the market anticipated, hence in the after hours the shares pulled back 3 percent.
This is an opportunity to buy more of what is one of the best investments out there with huge growth potential even in developed markets. Buy.