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Visa - solid first quarter, but Q2 off to an icy start

Visa's net revenue rose by 9.0% to $8.6bn...

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Visa's net revenue rose by 9.0% to $8.6bn in the first quarter, ignoring the effect of exchange rates. Underlying net income grew at a slightly slower pace to $4.9bn due to a rise in the tax rate.

There was an 8.4% increase in its payments volume. Almost half that volume originated in the United States. Here growth equalled 5.3%, but this pace declined to 4% in the first 21 days of the second quarter due to severe weather conditions. Cross-border total volumes were up by 16%, and this momentum has continued into the second quarter so far.

Visa anticipates low double-digit growth in net revenues over 2024, with performance to be weighted towards the second half.

Free cash flow came to $3.3bn whilst net debt had risen by 22.6% to $15.1bn since the year end.

There were $4.4bn in share repurchases and buybacks over the period.

The shares fell 2.8% in after-hours trading.

View the latest Visa share price and how to deal

Our view

Global consumers are proving more resilient than feared. As a payment and transaction giant, that's a trend playing nicely into Visa's hands.

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. That offers a level of protection in the face of an economic downturn.

A particularly sharp economic downturn could see credit defaults start to swell, but for now, Visa's benefiting from higher credit spend without that risk looming.

We are monitoring the fact that 50% of Visa's transaction volumes are US-based. Here consumer debt levels have grown relatively quickly in recent years. The market's been spooked by a deceleration in January. Visa sees this as a blip caused by brutally cold weather conditions. But it does mean the company needs to pedal harder to meet its 2024 guidance.

And with the cash-to-card transition arguably complete in the US, there are relatively few levers Visa can pull to mitigate any slowdown in its largest market.

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.

We're supportive of Visa's attractive business model. Additional transactions are virtually costless, so extra revenue turns straight into profit.

Debt, which includes obligations for crucial client incentives, is currently 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%. Remember no shareholder returns are guaranteed.

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. These are more digital-focused financial tools and could also accelerate Visa's growth outside of the US. We're supportive of Visa's efforts to broaden its revenue streams.

Long-term, we see payments in general, as an attractive business. Visa's valuation's not as demanding as it's been in the past, in part due to recessionary concerns, but its growth rate has not been as impressive as some of its peers. Its relatively high exposure to the US means that may continue to be the case for some time to come.

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
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 26th January 2024