visa (v) bench

23
VISA Joseph Eirkson, Matt Lochansky, Katie Lally The Nittany Lion Fund, LLC Penn State Investment Association Information Technology Sector

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Page 1: Visa (V) Bench

VISA

Joseph Eirkson, Matt Lochansky, Katie Lally

The Nittany Lion Fund, LLC.

Penn State Investment Association

Information Technology Sector

Page 2: Visa (V) Bench

Team Recommendation: Bench

Introduction

Description

Key Drivers Valuation Conclusio

n

•12 Month Price Target:

$88.34

•Appropriate Purchase Price:

<$78.50

Top Three Reasons for Bench:

•International Growth

1

•Over Blown Financial Regulation

2

•Increased Electronic Payments

3

Page 3: Visa (V) Bench

3

Company Description

Introduction

Description

Key Drivers Valuation Conclusio

n

Visa is a global payments technology company offering a diverse range of products and services: Debit, Credit, Pre-Paid and Cash Access

Connects consumers, businesses, banks and governments by enabling them to use digital currency instead of paper currency

Provides transactions based services to financial institutions and merchant customers through VisaNet processing

Value-added services: Risk management Fraud protection Loyalty and dispute management Debit issuer processing

Operates an open-loop payment network Connecting financial institutions and

managing information

Page 4: Visa (V) Bench

Revenue Breakdown

Introduction

Description

Key Drivers Valuation Conclusio

n

Geographic BreakdownSegment Breakdown

Page 5: Visa (V) Bench

International Growth

Introduction

Description

Key Drivers Valuation Conclusio

n

Expansion through Small, Medium and Large BusinessesVisa purchasing platform streamlines:

Paper Intensive Purchase Orders Invoice Processing

Increased number of cards issued:Over 1.8 billion Visa cards issuedOnly 988 million for MasterCardMore Cards More transactions

More payments

35% increase in International Consumer Debit Nominal Payments in Q1 2011

Continued increased payment volumes and consumer spending will drive growth

Page 6: Visa (V) Bench

Over-Blown Financial Regulation

Introduction

Description

Key Drivers Valuation Conclusio

n

Dodd-Frank Wall Street Reform Act has been overblownVisa has traded down 10% over the past year

due to potential revenue lossesLatest earnings have shown stellar growth

Revenues up 14%Net Income up 16%15.3 million share repurchase program

Visa has proven strong consistent growth:Domestically Internationally (40% of revenues coming from

overseas and 60% of growth international)

Recent News: “Rep Barney Frank said on 4/5/2011 that he supported

legislation to delay a rule cracking down on the fees banks charge merchants when a debit card is used.”

Page 7: Visa (V) Bench

Increased Electronic Payment

Introduction

Description

Key Drivers Valuation Conclusio

n

Growth in 2010 operating revenues due to:Nominal payment volume

13% growth in nominal payment volume in 2010Expected growth of 16% in 201115% growth in nominal payments for last 3 months 2010, counting

towards Q1 2011

Growth of processed transactionsData processing revenues increased 28% from 2009 due to 14%

growth in transaction processed15% growth for last 3 months 2010, counting towards Q1 2011

Includes revenue from CyberSource acquisition (completed July 2010)

Billable Transactions Increased from 707 million in Q1 2010 to 987 million in Q1 2011

Includes authorization, settlement, fraud management…

Page 8: Visa (V) Bench

Comparable Analysis

8Introduction

Description

Key Drivers Valuation Conclusio

n

Page 9: Visa (V) Bench

Ratio Analysis

9Introduction

Description

Key Drivers Valuation Conclusio

n

Page 10: Visa (V) Bench

Five Year Summary

10Introduction

Description

Key Drivers Valuation Conclusio

n

Page 11: Visa (V) Bench

Growth Analysis & CAGRs

11Introduction

Description

Key Drivers Valuation Conclusio

n

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Growth Analysis

Revenue EBIT D&A Capital Expenditures New Working Capital

Gro

wth

or

% o

f S

ale

s

Page 12: Visa (V) Bench

Projections

12Introduction

Description

Key Drivers Valuation Conclusio

n

Page 13: Visa (V) Bench

Discounted Cash Flow

13Introduction

Description

Key Drivers Valuation Conclusio

n

Page 14: Visa (V) Bench

Implied EV/EBITDA Valuation

14Introduction

Description

Key Drivers Valuation Conclusio

n

Page 15: Visa (V) Bench

Sector RiskRegulation in the Business Services Sub-

Sector:Newly issued laws and pending regulation

may decrease payment volume and increase lending costs

Intermingled with Financial Reform:Negative sentiment towards card issuers

Reduction in consumer and business spending:Potential downturn in IT infrastructure

spending by:Businesses Consumers

Visa’s Correlation with the Benchmark is the lowest of any of the current holdingsVisa S5inft is 0.489

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 16: Visa (V) Bench

Company Risk

Visa EuropeNewly independent system as of

2010 that processes it’s own transactions

Wall Street Reform and Consumer Protection Act:Regulates selection of payment

networks by issuers and the routing of debit transactions by retailers

Decreased Electronic Payment Volume If regulation prevents entrance into

new markets payment volume will decrease

Decreases in Consumer Spending

Interchange reimbursement fees Issues concerning transfer of value

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 17: Visa (V) Bench

Risk Analysis

Benchmark Risk

Sub-Sector

Geographic

Valuation

Market Cap

Company Specific

Valuation

Earnings

Volatility (Beta)

Acquisitions

Momentum

Industry Specific

Input Costs

Relative Product Innovation

Health Concerns

0 1 2 3 4 5

0 1 2 3 4 5 Notes

Financial Regulation

Visa Europe

5x as Fiserv

Meet or Beat Last 2 years

Beta=.97

PlaySpan Inc closed on 3/1/11

Page 18: Visa (V) Bench

18Introduction

Description

Key Drivers Valuation Conclusio

n

Sector Strategy

Current Allocation Proposed Allocation

Gain exposure to Data Processing & Outsourced Services Sub-Industry through Visa

Replace Fiserv, which primarily serves Financial Institutions to gain more exposure to consumer and business spending, bill payment and electronic funds transfer

More diversified holding through Visa which serves not only Financial Institutions and business but also end consumers

Page 19: Visa (V) Bench

Team Recommendation: Bench

•12 Month Price Target:

$88.34

•Appropriate Purchase Price:

<$78.50

Top Three Reasons for Bench:

•International Growth

1

•Over Blown Financial Regulation

2

•Increased Electronic Payments

3

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 20: Visa (V) Bench

20

Appendix – Correlation & Debt Distribution

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 21: Visa (V) Bench

21

Appendix – One Year Stock Chart

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 22: Visa (V) Bench

22

Appendix –P/E & EV/EBITDA

Introduction

Description

Key Drivers Valuation Conclusio

n

Page 23: Visa (V) Bench

Questions or Comments?The Future of Payment Is Here