JOHANNESBURG – Visa is a global leader in electronic payments technology. The $300 billion (R3.9 trillion) behemoth enables global commerce by facilitating electronic payments between consumers, merchants, financial institutions, businesses, strategic partners and government entities.
Visa is accepted in at least 150 countries and processes daily transaction volumes in excess of $30bn.
The company went public in 2008, listing on the New York Stock Exchange (NYSE) only days after the big Bear Stearns collapse.
Since then the shares have stunned the market with annual returns of 22 percent.
Visa’s enormous profits are put to work on behalf of shareholders by regularly buying back stock and paying a growing dividend. Its net income margin is 50 percent and its return on equity is 30 percent.
The 2018 World Payments Report indicates that cash remains the most widely used form of payment in all regions across the globe. Over half of all transactions worldwide are in cash. Non-cash transactions are forecast to post annual compound growth of 13 percent over the next three years.
The growing popularity of alternative electronic payment solutions is largely attributable to the rise of digital commerce, which exceeded $3 trillion in 2017 and is set to double by 2022.
Transactions that are still done in cash present a substantial long-term growth opportunity, particularly in developing markets where non-cash payments have only started gaining momentum in recent years.
Visa earns revenue by taking about 1.5 percent of each transaction that flows through its network. With over 3.3 billion cards in circulation to swipe, these fees add up at a staggering pace.
The company generated more than $20bn in total revenue for the latest financial year with 55 percent from the US alone.
Visa’s expansion into emerging markets such as Russia, India and China should drive growth, while the general spending shift away from cash in more established markets should contribute respectably to revenue growth.
The company's well-established payment network and strong relationships with major banks around the world position it to benefit from the growth of mobile payments.
Digital wallet providers such as Apple, PayPal and Alphabet choose to partner with payment providers such as Visa rather than recreate such networks and relationships.
Visa ranks among the most recognisable brands in developed countries and has been an official sponsor of the Olympic and Paralympic Games since 1986. It is the only card accepted at the venues hosting the events.
Although the company is not immune to a slowdown in global growth or disruptive technological change that could lead to unforeseen competition, its enormous scale, as well as continual development and support of new payment methods will make it dominant for many years to come.
Its unwavering business model and dependable growth are so appealing that investment analysts consistently price Visa shares at a premium. During the past week the company posted first quarter revenues and earnings that beat market expectations.
Management maintained its 2019 guidance of earnings per share growth in the mid-teens.
The recent market sell-off has afforded investors the chance to buy Visa shares at valuation multiples that are considerably below the long-term average.
Frants Preis, CFA is a portfolio manager at VEGA Asset Management based in Pretoria. Visa shares are owned on behalf of clients. The views expressed here are his.