Visa Q1 2016 numbers

Visa reported numbers after the bell yesterday. Visa of course is one of the largest companies on the planet that enables seamless payments on their switching networks, be it that you are transacting online, in a foreign country and paying for goods and services, or whether you simply are at your local store that offers the service. Remember checks and travellers checks? I guess in the years to come you could argue the case for a cashless society and companies with the payments systems, those who enable the merchant to speak to your financial institution across their reliable and trusted networks and "get the transaction done" are operating in the right space. And by right space, I mean that a company like this, their peers and other payment networks, will see an uptick in their business.


It is fair to say that the old line, Visa takes you places is true. So has the share price. Since the stock listed and was effectively unbundled from all the major financial institutions nearly 8 years ago, the stock is up 330 percent to settle at the close last evening at 69.35 Dollars. That represents around a 12 Dollar fall off from their recent highs, and by recent I mean around November. Yip, even for the high flying stocks that are not part of the FANG (Facebook, Amazon, Netflix and Google) grouping, the going has been tough. In fact in the recent quarter the company had repurchased 25.7 million shares at an average price of 78.52 Dollars, having used 2 billion Dollars worth of shareholder cash.


Numbers for the first quarter of their financial year 2016, here goes. Operating revenues increased 5 percent (8 percent stripping out the negative currency headwinds) over a year ago on payment volumes that changed 12 percent in constant terms, 62 percent of all of those being debit cards, the balance being credit cards. The total number of Visa embossed credit cards number 2.459 billion. And to think that to have a Visa embossed, or any other for that matter, credit card was a "thing". Remember? Now anyone has a gold or platinum card, perhaps the exclusivity has been lost in the age of the internet. Which is possibly a good thing, not so? Cash on hand at the company, nearly 25 billion Dollars. Which represents around 15 percent of the current market capitalisation. The company has whopping margins.


Which brings me to guidance that the company gave, this is for the full year ahead. They suggested that annual operating margins would be in the mid 60's percent, this is as you can imagine, an incredibly profitable business. They obviously have to spend a lot own their networks, to ensure that they can handle increased bulk. Annual adjusted Dollar EPS growth is expected to be in the low end of the mid teens range, which I interpret as around 13 to 14 percent, somewhere in that range. That then means that expectations for EPS are just above the 3 Dollars worth of earnings for the year. There will continue, as per the presentation on the investor relations page, currency headwinds, as much as a 4 percent impact. The stock then trades (based on a price in the pre market where it has moved higher to 71 Dollars) on a 23 multiple. The yield is low, around 0.8 percent. Not too generous yet!

What is still amazing to think is that the company does not have a business in China, on the conference call the chief Charlie Scharf had something interesting to say about that territory: "The strategic partnership and programs we announced, underscore our long-term commitment to China and to fulfilling the Chinese Government's goal of reducing property and promoting inclusive finance." That is pretty interesting, and does underscore the move to consumerism in China. And the deal in Europe has not been closed yet either, again Charlie on the conference call had this to say: "We've had great interactions with our Visa European colleagues. We've had a series of very positive conversations with European financial institutions and we remain confident that we're creating value and are focused on execution at this point."


I think that this business has huge scope to continue to grow. There are far too many transactions in cash for the liking of governments, and even banks. Transactions via the switching networks are far easier for all considered. We continue to consider this a high growth business with huge potential upside. Risks include heightened regulation, bearing in mind that the company is waiting to do business in Europe and China. In our view this remains one of the most attractive businesses to buy. And as such we remain conviction buyers of Visa.