Visa Inc (V) USD0.0001 'A'

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Visa’s net revenue rose 9% in the second quarter to $9.6bn, just slightly ahead of analyst expectations. An 8% rise in payments volumes and 13% increase in cross-border payments reflected resilient consumer spending.

Underlying net profit was up 6% to $5.4bn, with an increase in the tax rate partially offsetting the improved operating performance.

Free cash flow improved from $7.6bn to $9.4bn over the first two quarters, helped by the timing of receipts and payments. Net debt was $16.7bn.

Full-year guidance of low double-digit growth in net revenue, and low-teens growth for earnings per share was unchanged.

The company repurchased $4.5bn of shares in the period and has granted authorisation for $30bn of further repurchases over a multi-year period. A quarterly dividend of $0.59 per share was announced.

The shares were flat in pre-market trading.

Our view

Visa’s second-quarter performance has allowed it to hold on to its earlier guidance upgrade. Even in the wake of Donald Trump’s shock and awe approach to tariffs, there’s no sign of a material dent to payment volumes and travel patterns.

In the key US market, volumes look to be picking up. Payment growth typically outpaces the economy but structural challenges mean that gap is likely to narrow. And if the world’s largest economy does catch a cold, Visa has significant exposure.

The volume of lucrative cross-border transactions continues to expand faster than domestic volumes, but growth has slowed considerably as tailwinds from the post-covid travel boom have moderated.

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. Another risk to be mindful of is tightening regulation, but for now that’s an obstacle the card issuers seem to be taking in their stride.

Visa generated around $19bn of free cash flow last year and is expected to build on that number this year. This 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 0.7%. 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, and the group's been making strategic acquisitions, including a fraud prevention business underpinned by artificial intelligence (AI). We see the huge data sets processed by Visa as a likely beneficiary from recent advances in AI but would like to see more detail on how this can be monetised.

It’s also positioning itself as a key partner to merchants in an increasingly complex payments landscape. Its unified checkout service has the potential to lower payment failure rates for businesses and help Visa benefit from growth in digital payments regardless of the payment method chosen by customers.

Long-term we see payments in general as an attractive business. Visa's business model means that additional transactions are virtually costless, so extra revenue turns straight into profit. But high exposure to the US means that Visa’s fortunes are more closely tied to the health of this economy than some of its competitors. With a valuation towards the top of its peer group and above the long-term average, it’s a little vulnerable to disappointments.

Environmental, social and governance (ESG) risk

The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.

According to Sustainalytics, Visa’s management of ESG risks is strong.

Visa has a board-level committee that oversees its ESG strategy and related responsibilities and places a noticeable emphasis on ethics training. Visa has been and continues to be subject to anti-competitive related lawsuits; ongoing litigation alleges that Visa has abused its dominant market position to fix fees paid by merchants. It has implemented measures to monitor and mitigate data breaches and cyberattack. The company commits to a diverse and inclusive workplace and has implemented a target across its US workforce to increase historically underrepresented employees by 50% by 2025.

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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