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Visa - international payments help lift revenue

Net revenue rose 11% to $8.0bn in the second quarter, which was a 13% increase when currency fluctuations are ignored.

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Net revenue rose 11% to $8.0bn in the second quarter, which was a 13% increase when currency fluctuations are ignored. Growth reflected a 10% uplift in payments volume, as well as a 24% increase in cross-border transactions. International cross-border transactions, which excludes Europe, were up 32%. Total processed transactions were 50.1bn in the three-month period.

Higher personnel expenses meant operating costs were 11% higher at $2.6bn. There was a 16% increase in spending on client incentives to $2.9bn.

The higher revenues helped offset this, resulting in a 14% increase in underlying net profit to $4.4bn.

Visa generated free cash flow of $7.6bn, and had net debt of $6.8bn as at the end of the period.

The board of directors declared a quarterly cash dividend of $0.45 per share and there's over $11.0bn left of the existing share buyback programme.

The shares rose 1.2% in pre-market trading.

View the latest Visa share price and how to deal

Our view

Once again, Visa has surprised the market on the upside. Results were better than we expected. Crucially, the results show that consumer spending has been relatively stable despite tough economic conditions.

A sharp downturn could see credit defaults start to swell, but Visa's benefiting from higher credit spend without that risk looming. Despite appearances, Visa isn't a 'credit card company'. It doesn't lend consumers money or run accounts, so it's not on the hook for the money if a customer defaults. Instead, Visa charges banks for transferring funds.

Service revenues are charged to card issuers and are calculated based on the value of the transactions. Data processing revenues depend on the number of transactions that take place and are charged to the bank of both the customer and the receiving business. Cross-border transactions come with additional fees and currency conversion revenues. And this area of the business is enjoying a rebound as travel resumes and China reopens.

We're supportive of Visa's attractive business model. Additional transactions are virtually costless, so extra revenue turns straight into profit. Capital expenditure is limited, meaning profits convert well into cash. Of course, the reverse is also true - so short-term revenue falls have a direct effect on profit.

Net debt's easily covered by free cash flow meaning there's plenty of spare cash to go around. Surplus cash is being returned to shareholders through a combination of dividends and share buybacks. The emphasis is on the latter, meaning the prospective yield is a modest 0.8%.

Competition from start-ups and more established rivals has become a greater risk recently. But it's not one Visa's left unchecked.

The group's been making strategic acquisitions, with the latest additions to the fold including Tink and Currencycloud. These are more digital-focused financial tools, and we're supportive of Visa's efforts to broaden its revenue streams in this way.

Long-term we see payments in general, and Visa in particular, as an attractive business. The valuation's not as demanding as it's been in the past, in part due to inflationary concerns and their impact on future earnings. But we're still mindful that near-term volatility is possible, especially if a global economic downturn starts to impact spending.

Visa key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 26th April 2023