Ashley Pittard is a director and founding shareholder of PM CAPITAL. He is the portfolio manager for the company’s global equities strategies. Ashley also has responsibility for analyst coverage of technology (software, hardware and semiconductors), commodities, energy, consumer and media, globally.
How long have you held Visa?
We acquired the business during the October 2014 market turmoil at a 17x P/E multiple. We have followed Visa closely for many years but the opportunity to invest arose as volatility returned to the market late last year causing a notable share price drop in five business days, falling to an attractive entry price. The share price has subsequently appreciated almost 30% since that time.
What do you like about it?
Visa is the world’s largest retail electronic payments network, the essential middleman enabling the further penetration of electronic payments over cash and cheque. Over the last five years, Visa has grown sales at a low double-digit rate, with EBIT margins of 65%, whilst maintaining net cash on its balance sheet. We acquired the business during market turmoil and believe significant upside remains. We believe that significant further penetration remains, as illustrated by the chart, which stands at 35% (ex-China), up from 25% since 2007.
Visa is an oligopoly business (MasterCard being the other main competitor), thus has limited competition, as banks do not have the bandwidth, market share or global reach to bring these services in-house, and the likes of Google and Facebook have expressed no interest. Visa has very good scale benefits and high long-term growth potential.
What do you like about its management?
Management has executed their strategy very well so far and has been disciplined in terms of pricing. Their motto implies under promising, yet consistently over delivering.
What is your target price?
With bond rates at 2% for 10 years and Visa growing its earnings at a minimum of 10% per annum, the stock should be able to hold a 25 times forward Price /Earnings ratio and still remain fair value. (Forecast 2015 Price/Earnings currently sits at around 25).
At what point would you sell it?
We would only sell the business if the valuation became extreme, around the 35 times forward Price/Earnings, or structurally their market changed, which does not look like it’s on the horizon.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
We hold a 2.3% position within our global portfolio, and, in the four months we have held the stock, there has been a 30% price appreciation, hence the stock has already provided a significant return for the fund. However we see greater upside to come.
Is it a liquid stock?
Yes, the stock is listed in the US and has a current market capitalisation of US$161 billion and the stock has an average daily trading volume during the last three months.
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