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JUNE 2020 VISA Inc.

"With the transition of the world from analog to digital, Visa connects the brand, products, people and network globally to change the way business is done in the future. Globally, there is a tendency to replace cash with cards, which is why Visa is part of an industry with long-term growth potential. ”

MEDIUM-TERM INVESTMENT ANALYSIS OF VISA Inc.

Company introduction

  • Visa Inc. is a global payment technology company that connects consumers, businesses, banks and governments and allows them to use digital currency instead of cash and checks. The goal of Visa Inc. is to connect the world through the most innovative, reliable and secure payment network - enabling individuals, businesses and economies to prosper. VisaNet's advanced global processing network provides secure and reliable payments worldwide and is capable of processing more than 65,000 transaction reports per second. Other payment brands include Visa, Visa Electron, PLUS and Interlink.
  • New initiatives include Visa Direct, which simplifies people-to-people payments, Visa payWave, which enables contactless payments via smartphones, Visa Integrated Marketing Solutions - a card for the marketing platform for small and medium-sized issuers, and the Visa Commerce Network.
  • The company's targeted focus on innovation is a catalyst for the rapid growth of an interconnected business on any device and a driving force for a cashless future for everyone and everywhere. Visa's primary revenue segments are revenue from sales and services (36%), revenue from data processing (34%), international transactions (25%) and others (5%).
  • With the transition of the world from analog to digital, Visa connects the brand, products, people and network globally to change the way business is done in the future. Globally, there is a tendency to replace cash with cards, which is why Visa is part of an industry with long-term growth potential. According to Euromonitor International statistics, the use of consumer cards is on the rise and has already surpassed cash payments worldwide. It is estimated that consumer card payments will show a year-on-year growth of 6.6% in the long run.
  • Visa's strategic acquisitions, alliances and technological innovations, along with product diversification and geographic expansion initiatives, could continue to drive the company toward long-term growth.

Factors leading to an analysis of the potential growth in Visa's share price

  • For the six months ended March 31, 2020, Visa Inc. revenue was increased by 8% to $ 11.91 billion. Net income for ordinary shareholders increased by 7% to $ 6.13 billion. Revenue reflects data processing revenue segment up 14% to $ 5.58 billion, service revenue segment up 9% to $ 5.18 billion, international revenue segment up 9% to $ 6.54 billion, and U.S. growth reached 8% to $ 5.37 billion. The company's latest published results exceeded analysts' expectations for both total revenue and earnings per share (EPS).

  • In its full-year fiscal 2020 outlook, Visa expects annual net revenue growth to reach lower double-digit levels. In the most recent reporting period (February-April), profit per share reached $ 1.39 with earnings slightly below $ 6 billion. Analysts expected earnings per share for the period to reach $ 1.34 per share. New results for the second quarter of 2020 will be published on July 23.
  • Last year, Visa Inc., the California credit card giant, generally focused on absorbing companies and creating strategic investments and partnerships that help it develop the operational capabilities of its payment network. In mid-September 2019, the company said it had completed its acquisition of Verifi to strengthen its capabilities for comprehensive payment protection and management solutions. In early 2019, Visa made several takeover bids, including Earthport (cross-border payment services manager), Rambus (token services and ticket sales portal) and Payworks, a provider of next-generation payment software. In addition, last year the company's management signed a cooperation agreement with the Australian company Afterpay, which is to result in the creation of a new version of interest-free advanced payments.
  • According to Visa Inc. management, last year's purchases significantly increased the company's capabilities, expanding reach to more than 99% of global bank accounts in 88 markets, making it easier to token all types of transactions, including its own, more effective dispute resolution and enable omnichannel payment processing through the company's e-commerce platform Visa CyberSource.
  • Visa Inc. has entered the new year with strong growth in the spirit of the long-term growth trend, thanks to which on February 19, 2020, it reached a new historical maximum of USD 214.17/share.
  • Higher credit rating. In April last year, Moody's Investors Service backed Visa's financial profile by upgrading the company to Aa3 from A1, based on optimistic expectations that the company's growth would continue to be supported by new growth opportunities internationally. This could give the company some resilience to the US economic downturn. At the same time, Moody's expects Visa to remain loyal to (a) a conservative debt-adjusted debt-to-equity (EBITDA) debt structure maintained at 1.5 times or less, (b) a balanced policy of allocating capital to strategic mergers and acquisitions, and (c) past returns on shareholders' investments.
  • Boom on the side of consumer household loans. The company's financial profile is further supported by higher volumes of consumer loans in the USA. According to the New York Fed's Center for Microeconomic Data (CMD), US household total debt rose $ 192 billion in the second quarter of 2019, up 1.4% to a new record of $ 13.9 trillion. The debt balance of US households has been growing for the sixth year in a row and is now $ 1.2 trillion higher than the previous record of $ 12.7 trillion in the third quarter of 2008.
  • Long-term growth in the volume of payments. At the end of last July, Visa's CFO said the increase in U.S. payments was 9% in the third financial quarter of 2019. This was partly due to higher growth in consumer credit. Visa's payment volume increased 8% year-over-year in the first calendar quarter of 2019 and 9% year-over-year in the second quarter, with total transactions processed in the third financial quarter increasing by 12% to $ 35.4 billion. The volume of cross-border payments increased by 7% over the same period.
  • JP Morgan Chase, which recently agreed to extend the period of its strategic partnership with Visa until the end of 2029, attributes the growth of its own consumer and municipal banking division, in large part to the increase in housing loans, credit cards and car loans. In the penultimate quarter of last year, the bank recorded an increase in credit card loans by 8%, an increase in credit card sales volumes by + 10% and an increase in the volume of processed transactions at merchants by + 11%.
  • Vise has managed to double the reach of its B2B Connect cross-border payment network. B2B Connect is a cardless payment network that enables cross-border payments between companies. Since its launch in June this year, which covered approximately 30 global payment corridors, its size has doubled to the existing 62. Visa aims to expand the network to more than 100 countries during 2020. In addition, Visa announced a new partnership with Infosys and its integration into the B2B Connect network. Infosys is a leader in next-generation digital payments. Thanks to this new connection, participating financial institutions around the world can quickly and securely process cross-border corporate payments via Visa B2B Connect.
  • On September 30, the company announced a partnership with Revolut, based in the United Kingdom. Since its establishment in 2015, the company's client base has grown to the current 8 million users. The partnership with Visa will allow it to further expand globally into 24 new markets, including North America. According to the agreement, 75% of card issued should bear the name Visa.
  • Access to the payment market in Indonesia. At the end of 2018, in response to a request from Visa and Mastercard, the US authorities succeeded in persuading the Indonesian government to untie the rules around the new GSP (allowing Indonesia to export $ 2 billion worth of goods to the US at lower import tariffs). established domestic payment networks. This change will allow Visa to process credit card transactions in Indonesia through its own global payment network without having to partner with Indonesian companies and use the National Payment Gateway (NPG) domestic payment network.
  • The cash and digital battle continues. The growing volume of the use of digital payments represents a growth wind in the sails for Visa. Globally spread, the company is one of the biggest "fighters" in the war against cash. Although the number of battles won is growing from year to year, it is worth mentioning that the still resilient cash market with the remaining volume of 17 trillion USD represents a great growth opportunity for the company for many years to come.
  • The number of processed transactions has been increasing for a long time. With the huge volume of debit, credit and other cards currently circulating around the world (Visa has 3.378 billion cards in circulation), Visa may not seem to have many other growth opportunities. However, she has always been able to find ways to achieve growth. This is proof of how massive its potential field of action is. Visa continues to expand the capabilities of its own large, profitable processing network. Visa does not issue cards and does not bear any credit risk. Its business model is based on fees for processing payment transactions. During the last quarter, Visa processed 35.4 billion transactions globally, a year-on-year increase of 12%.
  • The expansion continues. The company continues to close acquisitions in order to expand its payment flow capabilities and reach new customers. Earlier this year, it acquired Earthport, developing its ability to handle cross-border transactions, a critical area of the company's growth in payments. This was followed by the acquisition of Payworks and the partnership with Gojek, which operates in the same segment as Uber and Lyft, and whose applications in Southeast Asia have received 108 million downloads since its launch.
  • Visa and Mastercard are endless money boxes for fees. It hardly depends on which bank you use. At the end of the day, your card probably needs a Visa or Mastercard payment network to work. Visa or Mastercard accept more than 80 million stores. With one of their cards in your wallet, you can buy things anywhere in the world.
  • Visa and Mastercard have effectively created universally accepted money - the "global currency". Last year, $ 13 trillion flowed through their nets. They make money by keeping a certain amount from each transaction. Visa and rival Mastercard have been recording long-term gains, and their shares have brought huge profits to investors.

Warning of potential risks for Visa Inc.

Customer Incentives: Visa has long been exposed to growth in client incentives aimed at attracting new and retaining existing customers. Incentives can be expected to remain at an increased level as company continues to seek new partnerships.

Foreign exchange market volatility: Visa earns almost half of its income from international markets, which exposes it to currency volatility.

Growth in operating expenses: Visa has seen an increase in operating expenses over the last few quarters, which is having a negative impact on potential growth in operating margins.

Last but not least, it is necessary to mention the ongoing unresolved trade disputes between the US and China, which could, if the current negotiations develop negatively, affect global economic growth negatively and, consequently, purchasing power as a whole.

Graph Visa Inc., source: Barchart.com

Hypothetical example - CFD on Visa shares

  • Invested amount CZK 1 million … USD 42,556 (converted by the CNB exchange rate of 6/16/20)

  • CFD stock contract type

  • Leverage 1:5

  • Margin 20% of the CFD stock

  • CFD share price 192.88 USD (as of 6/16/20)

  • CFDs … value … USD 192.88 … 20% margin … USD 38.58

  • Target Price 1 … 214 USD

  • Target Price 2 … >214 USD

  • 1st level of support … approx. 180.00 USD

  • 2nd level of support … approx. 173.80 USD

 

  • With a full 100% investment, up to 1103 units could be purchased at a margin of $ 38.58. However, under the unwritten rule of investors, the maximum amount invested should never exceed 50% of the investor's free funds.

  • In the case of the purchase of 1 CFD share on Visa Inc. The movement of the price to TP1 at the level of 214 USD / CFD shares offers a potential of 21.12 USD.

  • If 50% of available funds were invested and 551 CFD shares were purchased, a move of $ 21.12 would increase the appreciation potential of the analysis to almost $ 11,637.12.

  • In the event of a negative development and a decrease in the share CFD price to a support level of USD 180 / CFD share, the same trade would mean a loss for the investor amounting to 16.7% of the total volume of the investor's funds.


Please note that with regard to the size of the trading account and the size of the market, it is essential to adjust the size of the leverage and adjust the degree of selected risk accordingly. Trading CFD contracts and Forex is high risk and improperly set risk management can result in the loss of much or all of the investor's funds.

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