Come do the Visa swipe

“Total group payments volume will now exceed 6.5 trillion Dollars a year, up from 4.9 trillion with the addition of Visa Europe. North America at 42 percent of payments volume and Europe at 28 percent will be the bulk of the business, collectively they represent 46 percent of all the cards in issue. Rich people gonna spend, spend, spend and swipe!”


To market to market to buy a fat pig. We ramped higher again in Jozi, Jozi at the end of the session, coinciding with another decent session across the oceans and far away. A strong move northwards by MTN, rumours starting to circulate that a lower fine will be implemented were squashed by the company post market, suggesting that shareholders should just wait for an official announcement.

It has been an incredible ride, the stock has been battered and buffered by heavy winds from the regulatory authorities in Nigeria, their biggest market. And at the same time, MTN Zakhele, the empowerment vehicle with roughly a 4 percent stake in the company is set to list tomorrow, not the best of timing. Whilst the overall holding is 4 percent, there is a large number of shareholders, collectively around 40 percent of all shareholders (So there are many small shareholders). I am not too sure when the stock converts, I am guessing when the debt is retired. It is essentially a leveraged holding of the stock, and as such the price of MTN Zakhele could present greater opportunities. Just be patient and wait for an official release.

By the end of the session stocks had risen 0.4 percent as a collective, Aspen was another noticeable winner on the day, the company has also had a tough time since their recent results. The only announcement I could see was notice of their 17th AGM (Aspen is essentially a born free company!) in early December, and the company suggested that if you do not get your post on time that you should contact their website, email your proxies, etc. In other words, they suggest that the post office is redundant.

I feel desperate for Post Office workers who have not been paid on time, their loss is the win of courier companies, which has been creating employment. Reliable and safe, that is all consumers want when posting their goods, not someone opening the goods and fiddling with your property, I am afraid that in the end the consumer decides which business stays and which one doesn’t.

Stocks in New York, New York ended off their highs, still managed to close out the session in a positive fashion, the Dow Jones Industrial Average added half a percent, a strong recovery in Visa helped blue chips, that stock regaining all of their losses from the session prior. An upbeat analyst community upgrading their prospects for the company. Short term moves, the long term thesis remains, the company has much more to gain in technology age.

The broader market S&P 500 closed around one-quarter of a percent better, energy stocks were the winners on the day again. What matters for Mr. Market in the coming days will be the ADP read today, that is a look at private employment in the US from a payrolls crowd. That is normally ahead of the big “jobs” number Friday, we are all brought down to the levels of trying to pre-empt what the Fed is thinking. That should not worry your thinking, spend more time interrogating the future of the businesses that you own.


Company corner

A Visa is an annoying stamp that you need when you are going to visit a place, even more so if you are going to spend a short holiday there and spend your money. It is a less annoying when you are using a card in far flung parts of the world and are paying for something rather than carrying cash. In their “Our business” segment on their website, I think that they sum it up perfectly with the ease of use: “We have a simple and unwavering vision that can be traced back to our beginnings in 1958: To be the best way to pay and be paid for everyone, everywhere. We know that every Visa transaction is a promise. Whether it’s a street vendor in Brazil selling food to make a living or a fisherman in Rwanda paying his daughter’s school fees, we want to provide the most secure and seamless payment experience possible.”

Whilst Visa traces its roots back to the card based revolving credit feature in 1958, the listed entity as we know IPO’ed in 2008 (late March 2008). It is young, by listed company standards, younger than Google. Before that the major banks owned the company. The company topped 1 trillion Dollars in processing back in 1997 for the first time, the company had issued 1 billion cards by the year 2000. Remember when everyone was worried about YTK? And remember when “things” were not YTK compliant? Or were? Nowadays Visa has 2.4 billion cards in use across their networks, and processed over 103 billion transactions last year. The aim of Visa and the other switching payments technologies is to be able to reduce or eliminate the reliance on cash that humanity has built up over the centuries.

It is a difficult concept to grasp, if your childhood memories are of counting pennies and sticking them into your piggie bank, heading to the store (general dealer?) and buying gum or anything else. The idea of transacting with a card, or nowadays a smart phone and not “seeing” the cash is foreign for many folks around the world. There are some countries that are looking to become cashless societies, Denmark is an obvious example. Equally Sweden and Norway are looking to dump cash, Denmark are doing away with cash registers next year in all places other than essential services.

If you don’t need it at the supermarket, you certainly don’t need it at the hospital, right? Card based technology is moving quickly towards electronic (Apple Pay and the like) payment methods and equally biometrics, which Visa is testing on ATM’s here in South Africa in conjunction with ABSA (owned by Barclays Africa). Less cash usage means more utilisation of the switching on the networks, which equals more transactions through more swipes, which equals greater revenue over time.

The quarterly and annual results from two evenings back, in which Visa Inc. Reports Strong Fiscal Fourth Quarter was met with a muted reaction from the market. The stock sank after the numbers, as we pointed out, then regaining all of the losses from yesterday from the session prior. Adjusted full year numbers saw EPS rise 16 percent to 2.62 cents per share, with a stock price of 77 Dollars that hardly constitutes cheap, right? Payments volumes still continue to grow in the early teens, which is pleasing, times are tough out there!

The outlook was clouded by expectations of a three percentage point Dollar headwind on revenue, expectations for 2016 are around 10-12 percent revenue growth. About what the company did last year. All the news around earnings was however trumped (good trumps!) by news that Visa had finally nailed down the Visa Europe transaction, see the investor presentation. The purchase price consists of a 16.5 billion Euro upfront cash (11.5bn Euros) and preferred stock (the balance, 5bn Euros), and then a 4 billion Euro earn out over the coming years. The company intends to raise debt in order to complete the transaction.

The size of Visa Europe is pretty staggering, 509 million more cards added to the network (total now 2.9 billion globally), 16.1 billion more transactions processed, 1.417 trillion Euros in absolute transaction processed. Total group payments volume will now exceed 6.5 trillion Dollars a year, up from 4.9 trillion with the addition of Visa Europe. North America at 42 percent of payments volume and Europe at 28 percent will be the bulk of the business, collectively they represent 46 percent of all the cards in issue. Rich people gonna spend, spend, spend and swipe! I think that from the perspective of the sellers, the European banks, this arrives at an opportune time when many of them are raising cash to shore up their reserves requirements, many European banks have been in the news recently for exactly that. We are pleased that the integration has taken place.

Visa looks expensive, it always does. It is a must own, there are tons of transactions that happen in cash all around the world. Governments don’t want cash, neither do banks, they want electronic transactions, there is a holding cost of cash, there is admin and humans involved, that is an expense too. We continue to accumulate the company.


Linkfest, lap it up

Here is another big step in eradicating Malaria deaths globally – This urine test kit for malaria could save thousands of lives in Nigeria and beyond. The article does not give the test kits accuracy but if it is accurate then I am sure that it will replace the current blood test that needs to be done.

Most people know that sugar is not good for you but research is only just starting to show how bad it is for you – Sugar isn’t just making us fat, it’s making us sick. It was interesting that that study showed that even with increased consumption of junk food but the removal of sugar from a diet resulted in health readings improving. This is just the tip of the ice berg but over the long run you will probably find a decline in companies related to sugar, it may take decades like the very slow decline in tobacco companies.

The beauty of looking at 10 or 15 year graphs is that the small “blips” of market corrections don’t seem like an event. It is very different when you live through it, take the blip we had in August and September this year, that was only two months and many people panicked and sold. What happens when that blip is 6 months or a year? – The Biggest Difference Between the Real World & Academia


Home again, home again, jiggety-jog. Stocks all around reporting results, we will get a handle on it by the end of the week, I promise. Time is the one resource that we all have exactly the same of, each person has the same number, whether you are Warren Buffett, plain old Jo Investor, or Barrack Obama. It is how you use this precious resource that matters, you can choose to focus on all the things that could possibly go wrong in the world, I tend to focus on all the things that could possibly go right. It works for us, and it certainly works for our clients.


Sent to you by Sasha and Michael on behalf of team Vestact.

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