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VISA
Joseph Eirkson, Matt Lochansky, Katie Lally
The Nittany Lion Fund, LLC.
Penn State Investment Association
Information Technology Sector
Team Recommendation: Bench
Introduction
Description
Key Drivers Valuation Conclusio
n
•12 Month Price Target:
$88.34
•Appropriate Purchase Price:
<$78.50
Top Three Reasons for Bench:
•International Growth
1
•Over Blown Financial Regulation
2
•Increased Electronic Payments
3
3
Company Description
Introduction
Description
Key Drivers Valuation Conclusio
n
Visa is a global payments technology company offering a diverse range of products and services: Debit, Credit, Pre-Paid and Cash Access
Connects consumers, businesses, banks and governments by enabling them to use digital currency instead of paper currency
Provides transactions based services to financial institutions and merchant customers through VisaNet processing
Value-added services: Risk management Fraud protection Loyalty and dispute management Debit issuer processing
Operates an open-loop payment network Connecting financial institutions and
managing information
Revenue Breakdown
Introduction
Description
Key Drivers Valuation Conclusio
n
Geographic BreakdownSegment Breakdown
International Growth
Introduction
Description
Key Drivers Valuation Conclusio
n
Expansion through Small, Medium and Large BusinessesVisa purchasing platform streamlines:
Paper Intensive Purchase Orders Invoice Processing
Increased number of cards issued:Over 1.8 billion Visa cards issuedOnly 988 million for MasterCardMore Cards More transactions
More payments
35% increase in International Consumer Debit Nominal Payments in Q1 2011
Continued increased payment volumes and consumer spending will drive growth
Over-Blown Financial Regulation
Introduction
Description
Key Drivers Valuation Conclusio
n
Dodd-Frank Wall Street Reform Act has been overblownVisa has traded down 10% over the past year
due to potential revenue lossesLatest earnings have shown stellar growth
Revenues up 14%Net Income up 16%15.3 million share repurchase program
Visa has proven strong consistent growth:Domestically Internationally (40% of revenues coming from
overseas and 60% of growth international)
Recent News: “Rep Barney Frank said on 4/5/2011 that he supported
legislation to delay a rule cracking down on the fees banks charge merchants when a debit card is used.”
Increased Electronic Payment
Introduction
Description
Key Drivers Valuation Conclusio
n
Growth in 2010 operating revenues due to:Nominal payment volume
13% growth in nominal payment volume in 2010Expected growth of 16% in 201115% growth in nominal payments for last 3 months 2010, counting
towards Q1 2011
Growth of processed transactionsData processing revenues increased 28% from 2009 due to 14%
growth in transaction processed15% growth for last 3 months 2010, counting towards Q1 2011
Includes revenue from CyberSource acquisition (completed July 2010)
Billable Transactions Increased from 707 million in Q1 2010 to 987 million in Q1 2011
Includes authorization, settlement, fraud management…
Comparable Analysis
8Introduction
Description
Key Drivers Valuation Conclusio
n
Ratio Analysis
9Introduction
Description
Key Drivers Valuation Conclusio
n
Five Year Summary
10Introduction
Description
Key Drivers Valuation Conclusio
n
Growth Analysis & CAGRs
11Introduction
Description
Key Drivers Valuation Conclusio
n
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Growth Analysis
Revenue EBIT D&A Capital Expenditures New Working Capital
Gro
wth
or
% o
f S
ale
s
Projections
12Introduction
Description
Key Drivers Valuation Conclusio
n
Discounted Cash Flow
13Introduction
Description
Key Drivers Valuation Conclusio
n
Implied EV/EBITDA Valuation
14Introduction
Description
Key Drivers Valuation Conclusio
n
Sector RiskRegulation in the Business Services Sub-
Sector:Newly issued laws and pending regulation
may decrease payment volume and increase lending costs
Intermingled with Financial Reform:Negative sentiment towards card issuers
Reduction in consumer and business spending:Potential downturn in IT infrastructure
spending by:Businesses Consumers
Visa’s Correlation with the Benchmark is the lowest of any of the current holdingsVisa S5inft is 0.489
Introduction
Description
Key Drivers Valuation Conclusio
n
Company Risk
Visa EuropeNewly independent system as of
2010 that processes it’s own transactions
Wall Street Reform and Consumer Protection Act:Regulates selection of payment
networks by issuers and the routing of debit transactions by retailers
Decreased Electronic Payment Volume If regulation prevents entrance into
new markets payment volume will decrease
Decreases in Consumer Spending
Interchange reimbursement fees Issues concerning transfer of value
Introduction
Description
Key Drivers Valuation Conclusio
n
Risk Analysis
Benchmark Risk
Sub-Sector
Geographic
Valuation
Market Cap
Company Specific
Valuation
Earnings
Volatility (Beta)
Acquisitions
Momentum
Industry Specific
Input Costs
Relative Product Innovation
Health Concerns
0 1 2 3 4 5
0 1 2 3 4 5 Notes
Financial Regulation
Visa Europe
5x as Fiserv
Meet or Beat Last 2 years
Beta=.97
PlaySpan Inc closed on 3/1/11
18Introduction
Description
Key Drivers Valuation Conclusio
n
Sector Strategy
Current Allocation Proposed Allocation
Gain exposure to Data Processing & Outsourced Services Sub-Industry through Visa
Replace Fiserv, which primarily serves Financial Institutions to gain more exposure to consumer and business spending, bill payment and electronic funds transfer
More diversified holding through Visa which serves not only Financial Institutions and business but also end consumers
Team Recommendation: Bench
•12 Month Price Target:
$88.34
•Appropriate Purchase Price:
<$78.50
Top Three Reasons for Bench:
•International Growth
1
•Over Blown Financial Regulation
2
•Increased Electronic Payments
3
Introduction
Description
Key Drivers Valuation Conclusio
n
20
Appendix – Correlation & Debt Distribution
Introduction
Description
Key Drivers Valuation Conclusio
n
21
Appendix – One Year Stock Chart
Introduction
Description
Key Drivers Valuation Conclusio
n
22
Appendix –P/E & EV/EBITDA
Introduction
Description
Key Drivers Valuation Conclusio
n
Questions or Comments?The Future of Payment Is Here
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