Whether is it debt or credit card, all of us should have at least one Visa card in our wallet.

According to the company’s annual report for the financial year 2019 (ended 30 September 2019), it is currently the world’s leader in digital payments. Since the company’s inception in 1958, they have facilitated commerce across more than 200 countries and territories among a global set of consumers, merchants, financial institutions, businesses, strategic partners, and government entities.

Its core businesses include:

(i) credit cards – issued by financial institutions and used by co-brand partners and fintechs to allow customers and businesses to access credit to pay for goods and services. While Visa provide technology, authorisation, fraud tools, and brand support that issuers use to enable their credit products, they do not extend credit to account holders.

(ii) debit cards – also issued by financial institutions to allow consumers and businesses to purchase goods and services using funds held in their bank accounts. Visa provides a strong brand, network infrastructure (including processing, acceptance, product features and support, risk tools and services), and industry expertise to help issuers optimise their debit offerings.

(iii) prepaid cards – as the name suggests, these cards come with a designated balance pre-funded by individuals, businesses, or governments. These prepaid cards help bring payment solutions to those with limited or no access to traditional banking products.

(iv) global ATM – providing cash access to account holders through Visa/PLUS global ATM in more than 200 countries and territories worldwide.

Finally, in terms of revenue contribution, the United States alone contributed 44.7% (or US$10,279m) towards its total revenue in FY2019, while the other international countries contributed the remaining 55.3% (or US$12,698m.)

Now that we have a better understanding of the company, along with its businesses, in the rest of this post, you will find its historical financial performance, debt profile, and dividend payout over a 5-year period (between FY2014/15 and FY2018/19), along with key statistics of its performance so far this year (i.e. 9M FY2019/20 ended 30 June 2020) compared against the same time period last year (i.e. 9M FY2018/19 ended 30 June 2019.) Finally, you will also find out whether or not at its current share price, is Visa Inc. considered ‘cheap’ or ‘expensive.’

Let’s begin…

Historical Financial Performance of Visa Inc. between FY2014/15 and FY2018/19

As mentioned earlier in this post, Visa Inc. has a financial year-end on 30 September.

In this section, let us take a look at its financial performance over a 5-year period – between FY2014/15 and FY2018/19:

Total Revenue and Net Profit (USD’mil):

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19
Total Revenue (USD’mil)	$13,880m	$15,082m	$18,358m	$20,609m	$22,977m
Net Profit (USD’mil)	$6,328m	$5,991m	$6,699m	$10,301m	$12,080m

Visa’s top-line recorded improvements every single year over a 5-year period – from US$13,080m in FY2014/15 to US$22,977m in FY2018/19, a compound annual growth rate (or CAGR) of 10.6%. As for its bottom-line, it saw year-on-year (y-o-y) growth in 4 out of 5 years, and a CAGR of 13.8% over a 5-year period.

Net Profit Margin (%):

The following table is Visa Inc.’s net profit margin over the past 5 years I’ve calculated:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19
Net Profit Margin (%)	45.6%	39.7%	36.5%	50.0%	52.6%

As you can see from the above, its net profit margin saw y-o-y declines between FY2014/15 and FY2016/17 before recovering in subsequent years thereafter.

Return on Equity (%):

In layman terms, Return on Equity (or RoE) is a measure of profitability (in percentage-terms) for every dollar of shareholders’ money the company uses. For example, if a company has a RoE of 15.0%, it means the company is able to generate a $15 profit for every $100 of shareholders’ money it uses.

The following table is Visa Inc.’s RoE over a 5-year period I’ve calculated:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19
Return on Equity (%)	21.2%	18.2%	20.4%	30.3%	34.8%

After falling to a low of 18.2% in FY2015/16, Visa Inc.’s RoE have saw y-o-y improvements since. As at the end of FY2018/19, its RoE, at 34.8%, is the highest over a 5-year period I’ve looked at.

Debt Profile of Visa Inc. between FY2014/15 and FY2018/19

When it comes to a company’s debt profile, my preference is towards those that have minimal or no debt, along with those that are able to fulfil its short-term debt comments (where their current ratio over the years are maintained at above 1.0.)

Let us take a look at Visa Inc.’s debt profile over a 5-year period – between FY2014/15 and FY2018/19:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19
Cash & Cash Equivalents at the End of Period (USD’mil)	$3,518m	$5,619m	$12,011m	$10,977m	$10,832m
Total Borrowings (USD’mil)	–	$15,882m	$16,618m	$16,630m	$16,729m
Net Cash/ Debt (USD’mil)	+$3,518m	-$10,263m	-$4,607m	-$5,653m	-$5,897m
Current Ratio	1.9	1.8	1.9	1.6	1.6

Due to its total borrowings increasing over the years, the company is in a net debt position in 4 out of 5 years (the only exception was in FY2014/15, where the company had zero borrowings.) Its cash and cash equivalents have also declined since hitting a high of US$12,011m in FY2016/17.

That being said, its current ratio have been maintained at above 1.0 over the last 5 financial years I have looked at, suggesting that the company is able to fulfil its short-term debt commitments.

Visa Inc.’s Dividend Payout to Shareholders between FY2014/15 and FY2018/19

Visa declares a dividend payout to its shareholders on a quarterly basis. However, do take note that if you are a Singaporean investing in a US-listed company, all dividends received will be subjected to a 30.0% withholding tax – meaning dividends you receive will be 30.0% lesser than what is declared.

The following table is Visa Inc.’s total dividend payout to its shareholders over the past 5 years, along with the payout ratios:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19
Dividend Per Share (USD/share)	50.0 cents	59.0 cents	69.0 cents	88.0 cents	105.0 cents
Dividend Payout Ratio (%)	19.4%	23.6%	24.6%	19.9%	19.7%

Over the years, Visa Inc. have been increasing its dividend payouts to its shareholders – from 50.0 cents/share in FY2014/15 to 105.0 cents/share in FY2018/19 – a CAGR of 16.0%.

Also, in terms of its payout ratio, it seems that the company pays out about 20% to 25% of its earnings as dividends to its shareholders.

Visa Inc.’s Key Financial Statistics for 9M FY2019/20 (vs. 9M FY2018/19)

In this section, let us take a look at Visa Inc.’s performance for the first 9 months of the current financial year 2019/20 (ended 30 June 2020), compared against its performance recorded in the same time period last year (i.e. 9M FY2018/19 ended 30 June 2019):

	9M FY 2018/19	9M FY 2019/20	% Variance
Total Revenue (USD’mil)	$16,840m	$16,745m	-0.6%
Net Profit (USD’mil)	$9,055m	$8,729m	-3.6%
Net Profit Margin (%)	53.8%	52.1%	–
Cash & Cash Equivalents at the End of Period (USD’mil)	$10,669m	$16,934m	+58.7%
Total Borrowings (USD’mil)	$16,694m	$17,880m	+7.1%
Net Cash/ Debt (USD’mil)	-$6,025m	-$946m	–
Dividend Per Share (USD/share)	75.0 cents	90.0 cents	+20.0%

The first 9 months of FY2019/20 has not been a good one for the company – its top-line saw a marginal 0.6% drop due to declines in payment volume, cross border volume, and processed transactions. Correspondingly, its net profit also saw a 3.6% y-o-y decline.

However, I am happy to note that, even though the company is still in a net debt position, but it is much improved even though its total borrowings spiked up, as a result of a huge 58.7% y-o-y increase in its cash and cash equivalents.

Finally, Visa Inc.’s dividend payout to shareholders also went up by 20.0% compared to last year to 90.0 cents/share.

From the company’s results results for 9M FY2019/20, I note that it did not provide an outlook for its full-year results due to uncertainties relating to Covid-19 on the global economy, and hence, on Visa’s financial performance.

Is the Current Share Price of Visa Inc. Considered Cheap or Expensive?

To find out whether or not a company’s current share price is considered cheap or expensive, I tend to compare its current valuations (based on its current share price) against its average over the years.

The following table is Visa Inc.’s historical valuations over the past 5 years I’ve computed, along with its average:

	FY 2014/15	FY 2015/16	FY 2016/17	FY 2017/18	FY 2018/19	Average
P/E Ratio	27.0	33.3	37.6	34.0	32.3	32.8
P/B Ratio	5.2	5.4	6.7	8.9	9.8	7.2
Dividend Yield	0.7%	0.7%	0.7%	0.6%	0.6%	0.7%

At the time of writing, the share price of Visa Inc. is trading at US$202.61 (its closing price on 18 September 2020), and as such, its current valuations are as follows:

P/E ratio: 39.1
P/B ratio: 14.7
Dividend Yield: 0.5% (calculated based on a total dividend payout of US$1.05/share in FY2018/19)

Comparing its current vs. its 5-year average valuations, Visa Inc., at its current price, is considered expensive due to its higher-than-average current P/E and P/B ratios, along with a lower-than-average current dividend yield.

In Conclusion

While I like the digital payment company’s growth in its top- and bottom-line over the past 5-years, but I’m concerned about its increasing total borrowings over the same time period.

Also, due to the negative impact on the global economy no thanks to the ongoing Covid-19 pandemic, people may cut their spending and this may impact Visa’s financial performance in the near-term.

With that, I have come to the end of today’s post about Visa Inc. – hope you find today’s share useful. As always, this post is purely for educational purposes only and do not represent any buy or sell recommendation for the company. As always, please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of Visa Inc.

Are You Worried about Not Having Enough Money for Retirement?

You're not alone. According to the OCBC Financial Wellness Index, only 62% of people in their 20s and 56% of people in their 30s are confident that they will have enough money to retire.

But there is still time to take action. One way to ensure that you have a comfortable retirement is to invest in real estate investment trusts (REITs).

In 'Building Your REIT-irement Portfolio' which I've authored, you will learn everything you need to know to build a successful REIT investment portfolio, including a list of 9 things to look at to determine whether a REIT is worthy of your investment, 1 simple method to help you maximise your returns from your REIT investment, 4 signs of 'red flags' to look out for and what you can do as a shareholder, and more!

You can find out more about the book, and grab your copy (ebook or physical book) here...