Friday, 5 June 2015

Visa - a strong brand business: so what price to buy?

Last week I observed (link here) that Visa was not only a top global brand...


...but also had a high brand value as per the BrandZ analysis versus its market cap level.

I have written about Visa before with my analysis last year starting off like this:

'Visa is well-known to most investors.  As consumers we see the logo on our credit or debit cards...


...but the reality is the company is the business makes its money as an integrated global payments technology company operating in almost all countries around the world (with the end product as the consumer using their debit/credit card)'

Since then the company has split its shares (4:1 on March 18th this year) but the stock on an adjusted basis has continued to perform well...


...including de facto market share growth 


Looking at the recent metrics the company continues to grow at either side of a double digit level which with operational leverage and related turns into a low teens ebit growth and proportional cash accumulation.

Of course there are plenty of structural reasons for this with the very high purchase transactions market share helping to form a high barrier to entry...


...and the structural shift towards credit/debit cards (still) and - of course - e-payments...


Underlying operational metrics in the last quarter reported were fairly solid as you would expect given the above...
...as was the guidance...more teens growth and a number for free cash flow generation.  
So what value (or valuation) this profile?  Of course one measure is a 5% free cash flow yield which would imply a US$120bn market cap or a share price of US$50 (fascinatingly equivalent to the US$200 'buy point' of the pre-split Visa report linked above).  

How about an earnings related measure? Structural growth and a strong balance sheet suggests to me a forward x16 EV/ebit level which would imply a 'buy' price of around US$60 or below a share.  

Finally technically I note the importance of the US$65 level. 

So...a flag at US$65 but with more value factors kicking in at US$60, then US$55 and finally US$50.  The latter three levels sounds like a trading strategy to me...

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