Visa (V, Financial) is a marvel – an incredible cash-generating machine. Visa was one of our top performers in the fourth quarter and for the full year. The multiyear tailwind of the global transition away from cash transactions continues unabated, driving solid double-digit growth in payment volumes, transactions, revenues and earnings throughout the year. As of the end of the September quarter, Visa estimates that after all of these years only roughly 10% of global payment volumes are paid by card; with cash, check, and ACH still making up the overwhelming majority of transactions. We continue to expect Visa to benefit as electronic payments take share throughout the world and increase their penetration in all forms of transactions, from Personal Consumption (where cards have a relatively higher, but still small, share than in other forms of payment) to the significantly underpenetrated areas of Business-to-Business, Person-to-Person, and Business-to-Consumer.
The Company is not resting on its laurels with their success in the U.S. Back in June 2016, Visa purchased Visa Europe for a whopping $23 billion – adding over $15 billion on its balance sheet to finance the deal. The acquisition will recombine the global Visa brand after eight years as separate entities.
The Company has large ambitions outside of Europe, too. The U.S. payment processors have their collective eyes on the giant Chinese market. The $8 trillion yuan bank card network is currently dominated by state-backed China UnionPay. We expect the Company (if they haven’t already) to begin preparing to request licenses to operate in China.
As with much of our portfolio, particularly in our tech-related holdings, we are not concerned about the company’s growth prospects or long-term competitive position, but we are keeping an eye on valuation. Visa’s competitive position and competitive advantage is nearly unmatched. The Company generates buckets of free cash flow (FCF) to match its competitive position. Visa’s 5-year average FCF per revenues is an amazing 40%. But, like most of the market, Visa is trading at a healthy valuation on an absolute and relative historical basis, but we feel that the company’s steady and highly visible longer-term growth potential in volume, revenue, earnings, and cash flows establishes Visa as an attractive value in relation to our investment universe.
From David Rolfe (Trades, Portfolio)'s fourth quarter 2017 shareholder commentary.
