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Visa - more buybacks on deck, dividend raised

Fourth quarter revenue rose 23% excluding the impact of currency changes to $7.8bn, helped by continued recovery in cross-border travel...

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Fourth quarter revenue rose 23% excluding the impact of currency changes to $7.8bn, helped by continued recovery in cross-border travel and 10% growth in payment volumes and a 12% rise in processed transactions.

Underlying net profit rose 16% to $4.1bn. This was slower than the pace of revenue growth thanks primarily to an 18% increase in operating expenses.

The group purchased $2.1bn worth of its own shares in the period, bringing the total for the year to $11.6bn. The board authorised a new $12.0bn repurchase programme in addition to the remaining $5.1bn from the last buyback scheme.

Visa also announced a $0.45 quarterly dividend, reflecting a 20% increase.

Free cash flow rose from $3.8bn to $5.6bn, reflecting improved profitability. Net debt rose from $4.5bn to $6.8bn, primarily reflecting cash put aside for pending lawsuits and a slight increase in short-term debt.

The group's expecting low double-digit growth in payment volumes and processed transactions in 2023, with cross-border payments continuing to recover at a similar rate to this year. In the first quarter, Visa's forecasting revenue growth in the high single digits.

CFO Vasant Prabhu said, "we assume stable conditions through fiscal year '23 but are prepared to act fast should circumstances change."

The shares were broadly flat in early trading.

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Our view

Visa's seen strong post-pandemic demand continue, and despite worries that a downturn is coming, the group's expecting the good times to continue.

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.

That's always been a very attractive business model. Additional transactions are virtually costless to Visa, 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 this year, 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 0.9%.

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.

Looking to the year ahead, management expects a continued recovery in cross-border travel and low-single digit growth in payment volumes and processed transactions. All of this suggests inflationary pressure won't derail customer spending plans - an optimistic prospect in our view.

However, 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
Laura Hoy
Laura Hoy
ESG Analyst

Laura is part of HL's ESG analysis team, working to offer research and analysis to help with sustainable decision making. She also works with other parts of the business to help integrate ESG.

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Article history
Published: 26th October 2022