Company Overview: Visa Inc. (NYSE: V) is one of the world's leading payment processors. It enables global trade and money transfer among a worldwide collection of customers, merchants, financial institutions, and government entities spanning more than 200 countries and territories. During FY21, the company witnessed 232 billion payments and cash transactions through its brand, averaging 637 million each day. As a result, Visa processed 165 billion transactions out of the total 232 billion.

V Details

Key Takeaways from FY21 (ended September 30, 2021)

• Boost in Revenues: The company's net revenues during FY21 were USD 24.11 billion, a 10.34% increase YoY from USD 21.85 billion during FY20, driven by growth in payments volume, processed transactions and cross-border volumes.
• Growth in Bottomline: Net income was USD 12.31 billion during FY21, compared to USD 10.87 billion during Q3FY20, representing a diluted Class A EPS of USD 5.63.
• Surge in Nominal Payments Volume: It recorded an increase in total nominal payments volume to USD 9,968 billion during FY21 vs. USD 8,714 billion during FY20.

Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• On November 10, 2021, Visa stated that October's US Spending Momentum Index (SMI) was 110.6 (seasonally adjusted), up 2.1 points from September. The SMI's continued rise above 100 indicates that consumers spent more than they did a year ago.
• It launched Visa Eco Benefits on November 09, 2021, a new bundle of sustainability-focused benefits for account issuers designed to enable and encourage cardholders to engage in sustainable spending habits. The Visa Eco Benefits bundle will be available initially in Europe, then globally to the company's clients over the next year.
• On November 04, 2021, Visa announced that it had joined the Financial Gateway of the International Air Transport Association (IATA), a trade association for the world's airlines, to help airlines simplify commerce and payment efficiencies, prevent fraud, and maximise profit revenue, and innovate more quickly.

Balance Sheet & Liquidity Position

• Slight Decline in Cash Balance: The company exited FY21 with a cash balance (including investment securities) of USD 18.51 billion, down 7.63% from USD 20.04 billion as of FY20 end.
• Progress in Cashflow from Operations: Net operating cash inflow during FY21 was USD 15.23 billion vs. USD 10.44 billion during FY20.
• Decline in Debt Profile: As of September 30, 2021, Visa's total outstanding debt was USD 20.98 billion, a 12.85% decline from USD 24.07 billion reported at the end of FY20.

Key Metrics: During FY21, Visa's EBITDA and net margins were 69.0% and 51.1%, significantly higher than the industry median of 19.0% and 3.5%, respectively. Its Debt/Equity ratio improved to 0.61x in FY21, from 0.77x in FY20.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 31.90% of the total shareholding, while the top 4 constitute the maximum holding. The Vanguard Group, Inc. and the BlackRock Institutional Trust Co. N.A. hold the maximum stake in the company at 8.65% and 4.72%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis

• Customer Concentration: Visa's financial institution division clients may choose to end their contractual agreement with the company with relatively little notice and without incurring hefty early termination fees. Because its largest clients account for a significant amount of its net sales, any loss of business from one of these larger clients could hurt its business and cash flows.
• Dependence on Third Parties: The company relies heavily on connections with its account holders, third-party vendors, and suppliers to support its products and services and compete effectively in the marketplace. Poor performance on the part of these third parties could result in a poor experience for Visa's account holders, hurting its revenue and reputation.
• Technological Risk: Visa may be more vulnerable to cyber-attacks because of its prominence and involvement in the worldwide payments business. As a result, any system failure or outage could result in negative publicity, particularly on social media, thereby hurting its reputation and financial results.
• Intense Competition: The global payments industry is very competitive. As the international payments landscape becomes more complex, Visa will face increased competition from fintechs, other digital payments, technology companies that have developed payment systems enabled by online activity in e-commerce, social media, and mobile channels, as well as governments in several jurisdictions that are growing, and operating national schemes, real-time payment networks, and other payment platforms.

Outlook

• Looking ahead, Visa forecasts revenue growth in high teens in Q1FY22. In keeping with the Q4FY21 performance, client incentives as a percentage of gross revenue are expected to be around 26% to 27%.
• On the outflow side, the company anticipates incurring USD 120 – 130 million in non-operating expenses, with a mid-teens (in % terms) increase in its operating expenses. The tax rate should range between 19.0 – 19.5%.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock remained relatively stable throughout the year. However, in the past six months, Visa corrected ~13.14%. The stock is currently leaning towards the lower band of its 52-week range of USD 190.10 to USD 252.67. We have valued the stock using the Price/Earnings-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its market dominance in the payment processing space, robust profit margins, and global market presence. We have taken peers like Mastercard, Inc. (NYSE: MA), Paypal Holdings, Inc. (NASDAQ: PYPL), and others. Considering the robust top and bottom-line performance, strong track record, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the current price of USD 200.85, up ~2.31%, as of December 06, 2021, 10:22 AM ET.

V Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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