MasterCard (MA, Financial), with headquarters in New York, is today the leading global payment solutions company that provides several services in support of credit, debt and other electronic payment programs.
The payment solutions include payment programs, marketing, product development, technology, among others. It also provides worldwide transaction processing and other related services, including facilitating authorizations, clearing and settlement of transactions.
MasterCard is present in 210 countries, has more than 22,000 customers — including financial institutions — and transacts in more than 150 currencies.
MasterCard is a company that is permanently investing in its brand and looking for new opportunities around the globe. Indeed, it has cut interesting deals with other companies.
In October 2010, it completed the acquisition of DataCash Group Plc, a Europe-based e-commerce payment service provider, which will in the short term enable MA to enter the e-commerce market in Asia, Europe, Australia and other emerging economies.
In April 2011 it acquired prepaid Card Program Management (CPM) operations of Travelex.
In addition, the company sponsors different sporting events in cricket, golf and rugby with the PGA TOUR, PGA European Tour and Rugby World Cup 2011, along with Copa America Argentina 2011.
They are all intended to help create business and building opportunities among a more affluent demography.
Apart from these agreements and sponsorship, MA is doing very good marketing campaigns. With “Priceless” it has been able to gain recognition globally, and cardholders across the world know they can shop anywhere.
The move from cash and checks to electronic forms of payments is benefiting the company. Of course, there is competition and MA has to be careful about it. With the employment of new technologies worldwide, a new payment method is arriving, mobile payment, which in the future can make changes in the dynamics of the payment industry.
MasterCard is primarily managed through its Global Technology and Operations headquarters in Missouri along with a co-processing facility in Kansas City.
MasterCard's card brands include MasterCard, Maestro and Cirrus.
I like the fact that prominent Gurus hold the stock. As we can see from the table, respected Gurus such as Hausman, Halvorsen and Gayner initiated new positions in the last quarter while David Winters (see below) and Soros increased it. Warren Buffett and Eveillard also hold the stock.
In the last two years revenues have been growing at an excellent pace. In 2010 revenues from the largest customers accounted for $1.5 billion, or 28%.
Of total revenue, only 41.6% came from the U.S. in 2010 while the remaining percentage came from overseas. MasterCard gives investors a growing emerging markets business.
In terms of competition, MA competes with Visa (V, Financial), another leading company in the same industry. American Express Co. (AXP, Financial) and Discover Financial Services (DFS, Financial) also put certain pressure.
Competition mainly focuses on pricing, discounts and benefits, product innovation and quality, security and integrity of transaction processing.
Scott Devitt from Morgan Stanley says: “MA is a great company, and there is no denying the importance of the service it provides. With the use of cash decreasing and the use of plastic increasing, MA has a great business model.”
Indeed there are specific reasons that make MA a good pick:
MA has a strong financial portfolio and from time to time it returns value to shareholders. Furthermore, operating expenses have declined 48% and 1.8% in 2009 and 2010, respectively, while margins have gone from 39% to nearly 44% in those same years. In 2011, they reached 54.6%.
Although advantages outnumber the risks, it is necessary to point out that the company may sometimes face important problems. The first one is regulation, which might derail the business model. Government's interference in the network operations can bring substantial downside. Furthermore, competition is mounting and may change MA's future. Finally, it is alleged that MasterCard has been engaged in anti-competitive and anti-consumer practices that have brought different lawsuits. Although the amount involved in them cannot be estimated, it is considered that it is a big number.
Setting aside the pros and cons, MA also has the last quarter results report and it shows that the year, in general terms, has been fruitful.
First of all, the firm reported $717 million in net income, or in other words, $5.63 per diluted year. This involves a 38% increase from last year's revenue, which grew by 27% from the prior-year quarter.
Volumes are also growing with the switch from cash and checks to electronic forms of payment. The total purchase volume jumped from 17% to 20% in foreign markets and a higher pace of growth was recorded in the U.S.
Although operating expenses have increased and are expected to continue rising in 2012, the operating margin will remain more than 50%.
In terms of management, the CEO has limited experience in the business. Nevertheless, he has very good qualifications to run MasterCard. The highest concern about the management team is that they want shareholders to contribute with acquisitions.
Now, what are the expectations for the future? MA has had a good performance the last few years. Is this good performance expected to continue?
MA will continue benefiting from demand growth, international exposure, high barriers, and excellent pricing power, among other issues.
In addition, the strategic acquisitions, the diversification of its products and the partnerships are turning MA into a sound firm.
Shares are currently trading at 19.2x of the earnings estimate, at 15% premium to 16.8x industry average but well below MA's highest P/E of 29.
It has a ROE of 42.1%, which is quite below the industry average of 57.7%, but investors should not be worried.
If MasterCard stock continues rising it will approach the upper band of its historical multiples. While MA is not cheap, it is not expensive in comparison to its historical multiples and I think that still represents an opportunity to buy because MA will keep trading at an increasing higher premium over the general market.
The payment solutions include payment programs, marketing, product development, technology, among others. It also provides worldwide transaction processing and other related services, including facilitating authorizations, clearing and settlement of transactions.
MasterCard is present in 210 countries, has more than 22,000 customers — including financial institutions — and transacts in more than 150 currencies.
MasterCard is a company that is permanently investing in its brand and looking for new opportunities around the globe. Indeed, it has cut interesting deals with other companies.
In October 2010, it completed the acquisition of DataCash Group Plc, a Europe-based e-commerce payment service provider, which will in the short term enable MA to enter the e-commerce market in Asia, Europe, Australia and other emerging economies.
In April 2011 it acquired prepaid Card Program Management (CPM) operations of Travelex.
In addition, the company sponsors different sporting events in cricket, golf and rugby with the PGA TOUR, PGA European Tour and Rugby World Cup 2011, along with Copa America Argentina 2011.
They are all intended to help create business and building opportunities among a more affluent demography.
Apart from these agreements and sponsorship, MA is doing very good marketing campaigns. With “Priceless” it has been able to gain recognition globally, and cardholders across the world know they can shop anywhere.
The move from cash and checks to electronic forms of payments is benefiting the company. Of course, there is competition and MA has to be careful about it. With the employment of new technologies worldwide, a new payment method is arriving, mobile payment, which in the future can make changes in the dynamics of the payment industry.
MasterCard is primarily managed through its Global Technology and Operations headquarters in Missouri along with a co-processing facility in Kansas City.
MasterCard's card brands include MasterCard, Maestro and Cirrus.
I like the fact that prominent Gurus hold the stock. As we can see from the table, respected Gurus such as Hausman, Halvorsen and Gayner initiated new positions in the last quarter while David Winters (see below) and Soros increased it. Warren Buffett and Eveillard also hold the stock.
In the last two years revenues have been growing at an excellent pace. In 2010 revenues from the largest customers accounted for $1.5 billion, or 28%.
Of total revenue, only 41.6% came from the U.S. in 2010 while the remaining percentage came from overseas. MasterCard gives investors a growing emerging markets business.
In terms of competition, MA competes with Visa (V, Financial), another leading company in the same industry. American Express Co. (AXP, Financial) and Discover Financial Services (DFS, Financial) also put certain pressure.
Competition mainly focuses on pricing, discounts and benefits, product innovation and quality, security and integrity of transaction processing.
Scott Devitt from Morgan Stanley says: “MA is a great company, and there is no denying the importance of the service it provides. With the use of cash decreasing and the use of plastic increasing, MA has a great business model.”
Indeed there are specific reasons that make MA a good pick:
- The electronic forms of payment create significant growth opportunities. The systems are built with redundancy and backup which enables the transaction to continue despite interruptions in the service.
- MA is permanently looking for increasing cross-border volumes, improved pricing and consistent growth in transactions. The debit card business has been having a modest growth in MA with nearly 297 million debit cards globally and with an increase of 15.8% year over year.
- Despite the economic turmoil that eroded the reserves of most of the organizations, MasterCard enjoys strong cash and available-for-sale investment position along with strong retained earnings and no long-term debt.
MA has a strong financial portfolio and from time to time it returns value to shareholders. Furthermore, operating expenses have declined 48% and 1.8% in 2009 and 2010, respectively, while margins have gone from 39% to nearly 44% in those same years. In 2011, they reached 54.6%.
- MasterCard is permanently focus on increasing value in customers through an array of products which are both user-friendly and flexible.
- MA remains focused on its inorganic growth as part of its strategy.
Although advantages outnumber the risks, it is necessary to point out that the company may sometimes face important problems. The first one is regulation, which might derail the business model. Government's interference in the network operations can bring substantial downside. Furthermore, competition is mounting and may change MA's future. Finally, it is alleged that MasterCard has been engaged in anti-competitive and anti-consumer practices that have brought different lawsuits. Although the amount involved in them cannot be estimated, it is considered that it is a big number.
Setting aside the pros and cons, MA also has the last quarter results report and it shows that the year, in general terms, has been fruitful.
First of all, the firm reported $717 million in net income, or in other words, $5.63 per diluted year. This involves a 38% increase from last year's revenue, which grew by 27% from the prior-year quarter.
Volumes are also growing with the switch from cash and checks to electronic forms of payment. The total purchase volume jumped from 17% to 20% in foreign markets and a higher pace of growth was recorded in the U.S.
Although operating expenses have increased and are expected to continue rising in 2012, the operating margin will remain more than 50%.
In terms of management, the CEO has limited experience in the business. Nevertheless, he has very good qualifications to run MasterCard. The highest concern about the management team is that they want shareholders to contribute with acquisitions.
Now, what are the expectations for the future? MA has had a good performance the last few years. Is this good performance expected to continue?
MA will continue benefiting from demand growth, international exposure, high barriers, and excellent pricing power, among other issues.
In addition, the strategic acquisitions, the diversification of its products and the partnerships are turning MA into a sound firm.
Shares are currently trading at 19.2x of the earnings estimate, at 15% premium to 16.8x industry average but well below MA's highest P/E of 29.
It has a ROE of 42.1%, which is quite below the industry average of 57.7%, but investors should not be worried.
If MasterCard stock continues rising it will approach the upper band of its historical multiples. While MA is not cheap, it is not expensive in comparison to its historical multiples and I think that still represents an opportunity to buy because MA will keep trading at an increasing higher premium over the general market.
