Visa 2Q numbers - still double digit growth

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.

Trump and some of his top people have been talking recently about the Dollar being too strong. The initial impact of a weaker Dollar would be to increase the profitability of US based multinationals. For Visa, a strong Dollar took 2.5 percentage points off of their revenue growth and took 4 percentage points off of the EPS number.

An interesting number that came though was the positive impact for Visa from the Indian government clamping down on cash. Visa saw a 100% increase in transactions compared to last year and a 50% increase on access points over a 5 month period. Other governments may not be as harsh as the Indian government when it comes to clamping down on cash but I think it will come. Populations are ageing, governments need extra tax revenues, a large cash component in commerce has correlations to low tax compliance, the result is a big push lead by government to stamp out cash. Tax avoidance is just one negative aspect of cash, there is enough research to show that many illegal activities (like the drug trade) which have a negative impact on society is conducted using cash. Removing cash will not mean illegal activities cease to exist, it does mean it makes it harder to conduct, so some positive impact on society?

The important number for Visa though is what does usage look like? Transaction volumes are up 42% (thanks in part to the purchase of Visa Europe) to 26.3 billion transactions for the quarter. On the value side, all the transactions came in at $1.7 trillion, up 37% for the quarter compared to last year. Buying Visa now means you believe that the usage of cards and the Visa network will only increase for many years into the future. The argument against Visa is that there are rival payment methods popping up like PayPal, for most online shops you can now pay using PayPal instead of your credit card. Yes you can fund your PayPal account with a bank transfer but most people still use their credit card to top up their PayPal account. Paypal and Visa already have a very good working relationship. That goes for the multitude of other payment systems out there, Apple Pay, Android Pay, Venmo, Zapper and many more options.

The stock currently trades on a forward P/E of around 23 times, not cheap but not expensive for a company growing double digits. Management expect revenue for the full year to be up between 16% and 18% with no change on the company's margins, so similar operating earnings growth. When it comes to EPS growth there are a whole host of moving parts to take into consideration, the biggest would be the number of shares in issue. The board has given the green light on buying an additional $5 billion of Visa stock, taking the total share buy back war chest to $7.2 billion. Over the last 3 months the company bought back a little over 19 million shares for a value of $1.7 billion. Happy holders and buyers of this company.