Get documents about "Wamu Providian and Historical Credit Card Information
Description
Wamu Providian and Historical Credit Card Information document sample
Document Sample
Buy Presentation
Matthew Hall
3M Innovation by Matt Hall and Dave Gregory
Overview VISA: Overview
Thesis
Business Model
•Operates world’s largest retail electronic payments network
Industry
•Leader in debit/credit cards in circulation, most transactions,
Clients and most volume of any payment network providers
Internal
Future Dev. •16,600+ clients globally (primarily financial institutions)
Economic Moat
Valuation
•Retail service business, not financial services business
Risk Factors
•TTM revenues of $7.1b and Market Cap of $52b
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Investment Thesis
Thesis
•VISA is not a financial services company, but rather a retail
Business Model
service provider
Industry •as long as people purchase things, VISA has a market
Clients •Economic Moat:
Internal •Incumbent in market w/ oligopolistic characteristics
Future Dev. •Unsurpassed network infrastructure leading to significant
operational efficiencies (competes on cost – see operating
Economic Moat margins) and value added services
Valuation •Critical mass globally (brand already est. in huge growth
industry)
Risk Factors
•Minimal Capex req’d for substantial incremental sales
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Business Model
Thesis
•Electronic payment networks offer services to facilitate payments
Business Model
and transfers of value between financial institutions
Industry •Revenues from various “value-added” services and products:
Clients •Services (payments by customers participating in VISA card
program – consumer credit, consumer deposit access,
Internal
commercial)
Future Dev. •Data processing fees
Economic Moat •International
Valuation •Other (option services, i.e. concierge)
Risk Factors •Relationship w/ VISA Europe: trademark/tech licenses & bilateral
services (quarterly fees tied to EU GDP growth)
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
The Global Environment
Thesis
Business Model •On-going 30 yr shift from paper to electronic and card payments
Industry •Consumer shift growing merchant acceptance
•Think globally, not NA
Clients
•Relatively new trend in emerging economies
Internal
•Acceleration from rising incomes, globalization of commerce
Future Dev. and increased travel
Economic Moat •Going Fwd: expected double digit growth in global card purchase
transaction volume through 2012
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Industry Economics
Thesis
Business Model •Volume drives growth – how to achieve?
Industry •Implication: VISA’s network dynamics facilitate both
components of driving volume
Clients
Internal
Future Dev.
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Electronic Network Jargon
Thesis
•Cardholder – purchaser
Business Model •Merchant – retailer
•Acquirer – retailer’s financial institution
Industry
•Issuer – cardholder’s financial institution
Clients •Authorization, clearing & settlement – instantaneous
process
Internal Clearing
Future Dev.
Economic Moat
Valuation
Authorization Settlement
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Open Loop Business Model
Thesis
Open Loop Closed Loop
Business Model Visa Amex
Mastercard Discovercard
Industry
Multi-party system Responsible for
Clients
connecting financial providing all products
institutions (manages flow and services to
Internal of information) cardholder &
Depends on FI clients to merchant
Future Dev. provide products and Allows more control
Economic Moat
services directly to over system
cardholder (price Recently begun
Valuation discrimination) emulating open loop
Allows for concentration on system
Risk Factors more profitable activities
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Competition
Thesis
•Includes all electronic payment networks and all forms of non-
Business Model
electronic payment (product substitute)
Industry
All Figures in Billions
Clients
VISA MC AMEX DISC JCB Diner's
Internal Payment Volume $2,127 $1,417 $556 $96 $63 $22
% Market 49.7% 33.1% 13.0% 2.2% 1.5% 0.5%
Future Dev. Total Volume $3,230 $1,922 $562 $114 $70 $22
Economic Moat % Market 54.6% 32.5% 9.5% 1.9% 1.2% 0.4%
Transactions 44.0 23.4 4.5 1.4 0.7 0.1
Valuation % Market 59.4% 31.6% 6.1% 1.9% 0.9% 0.1%
Cards 1254.0 817.0 78.0 57.0 59.0 7.0
Risk Factors
% Market 55.2% 36.0% 3.4% 2.5% 2.6% 0.3%
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Clients
Thesis
•Major financial institutions globally
Business Model
•Implication: financial consolidation has not hurt VISA so far
Industry (see: JP Morgan Chase)
Clients
Internal •2/3rd of clients have been w/ VISA for 10+ yrs
Future Dev. •Implication: globalization of financial products will help VISA
enter new markets going fwd
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
VISA Payment Network
Thesis
Business Model •Scalable global processing platform (capacity: 478 billion
transactions annually) – limited growth & maintenance CAPEX
Industry req’d
Clients •Centralized processes & operational savings
Internal •Supplementary products: risk mgmt/security, info services,
dispute mgmt, etc.
Future Dev.
•Centralized vs. Distributed architecture: real time information
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Management
Thesis
Business Model •Understands industry
Industry •Conservative (clean capital structure)
•Well laid out growth strategy (evidenced by IPO and re-org)
Clients
•Joseph Saunders, CEO
Internal
•Sets tone for sr. mgmt
Future Dev.
•Career financial services mger including: MasterCard,
Economic Moat Providian, WaMu, Fleet Card Services and most recently
VISA International
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Future Developments
Thesis
•Increased international spending (40% and rising)
Business Model
•Increased use of “plastic” for non-discretionary
Industry
•Product customization (attractive in new markets)
Clients
•Continued product innovation (contactless payment methods,
Internal mobile payments, chip cards)
Future Dev. •Growth of merchant networks through incentives (~28m)
•Bottom line: huge growth potential requiring minimal CAPEX
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Economic Moat
Thesis
Business Model •Starting position (incumbent in oligopoly)
Industry •Critical mass w/in industry
•Network size makes VISA industry leader in price and
Clients
value (service offerings: risk mgmt, incentives, real-time
Internal information, etc.)
Future Dev. •Comprehension of market economics
•Open loop model/centralized architecture allow for flexibility at
Economic Moat
institutional level
Valuation
•Huge CAPEX requirement to enter industry and yrs to develop
Risk Factors client relationships & industry comprehension VISA has
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Valuation – Multiples
Thesis
•Generally useful to compare the relative value of
Business Model
companies
Industry •i.e., “the market” is willing to pay x for $1 of VISA
earnings vs. y for $1 of Mastercard’s earnings
Clients
•VISA has very few comps and very few public filings for
Internal
historical comparisons
Future Dev. •Comps are not useful in this case given VISA’s capital
structure, earnings history and lack of appropriate
Economic Moat
comparable businesses
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Valuation – DCF
2009E 2010E 2011E 2012E Terminal
Thesis
Revenue $ 8,292 $ 9,536 $ 10,966 $ 12,611 $ 13,241
Growth Rate 15% 15% 15% 15% 5%
Business Model
EBIT $ 3,317 $ 3,814 $ 4,386 $ 5,297 $ 5,561
EBIAT $ 2,073 $ 2,384 $ 2,741 $ 3,310 $ 3,476
Industry (+) D&A $ 50.00 $ 100.00 $ 150.00 $ 175.00 $ -
(-) Capex $ 450.00 $ 450.00 $ 328.98 $ 378.32 $ -
Clients (-) Change WC $ 853.13 $ 591.58 $ 281.85 $ (71.50) $ (23.83)
FCFF $ 819.82 $ 1,442.31 $ 2,280.65 $ 3,178.51 $ 3,499.68
Terminal Value $ 122,488.84
Internal
Discounted FCFF $ 759.10 $ 1,236.55 $ 1,810.45 $ 2,336.30 $ 83,363.85
$ 91,386.31
Future Dev.
Enterprise Value $ 91,386 Current Market Cap $ 53,930
(-) Debt $ (109) Shares Outstanding 1,080
Economic Moat (+) Cash $ 6,239 Current Share Price $ 49.75
Equity Value $ 97,516 Intrinsic Value Per Share $ 90.29
Valuation Intrinsic Value Premium 81%
Stage One Growth Rate 15.0%
Terminal Growth Rate 5.0%
Risk Factors Stage One Capex $ 450
Terminal Capex 3.0%
Tax Rate 37.5%
Conclusion WACC 8.0%
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Valuation – DCF
Thesis Terminal Growth Rate vs. Stage One Growth Rate
$ 94,228.78 13.0% 14.0% 15.0% 16.0% 17.0%
4.0% $ 69,608 $ 71,084 $ 72,586 $ 74,114 $ 75,668
Business Model 4.5% $ 78,456 $ 80,143 $ 81,860 $ 83,607 $ 85,383
5.0% $ 90,257 $ 92,226 $ 94,229 $ 96,266 $ 98,339
5.5% $ 106,782 $ 109,145 $ 111,549 $ 113,994 $ 116,482
Industry 6.0% $ 131,574 $ 134,528 $ 137,534 $ 140,591 $ 143,702
Clients Terminal Growth Rate vs. Cost of Capital
$ 94,228.78 7.0% 7.5% 8.0% 8.5% 9.0%
4.0% $ 96,760 $ 82,934 $ 72,586 $ 64,556 $ 58,148
Internal 4.5% $ 114,587 $ 95,482 $ 81,860 $ 71,664 $ 63,752
5.0% $ 141,333 $ 113,053 $ 94,229 $ 80,806 $ 70,759
Future Dev. 5.5% $ 185,917 $ 139,415 $ 111,549 $ 92,999 $ 79,772
6.0% $ 275,096 $ 183,359 $ 137,534 $ 110,072 $ 91,792
Economic Moat
Terminal Growth Rate vs. Terminal Capex
$ 94,228.78 2.0% 2.5% 3.0% 3.5% 4.0%
Valuation 4.0% $ 75,087 $ 73,837 $ 72,586 $ 71,336 $ 70,086
4.5% $ 84,718 $ 83,289 $ 81,860 $ 80,431 $ 79,003
5.0% $ 97,563 $ 95,896 $ 94,229 $ 92,562 $ 90,895
Risk Factors 5.5% $ 115,550 $ 113,549 $ 111,549 $ 109,548 $ 107,548
6.0% $ 142,535 $ 140,034 $ 137,534 $ 135,033 $ 132,532
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Alternative Valuation
Thesis
•Assume nominal GDP growth rate
Business Model
•Assume stabilized % of global “transfer of value”
Industry transactions completed electronically (~150% today)
Clients •Three Scenarios
Internal •VISA gains relative market share
Future Dev. •VISA relative market share stays flat
•VISA loses relative market share
Economic Moat
•Apply appropriate margins to revenue share to determine
Valuation
VISA terminal FCF
Risk Factors •Discount at WACC sensitivity
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Recession Resilience
Thesis
•Always ask: “What’s the downside risk?”
Business Model
• 40% (and growing) of revenue generated from non-
Industry discretionary spending
Clients •2007 re-org offers cost-cutting and price discrimination
flexibility
Internal
•~36% of VISA’s cost structure is variable with some discretion
Future Dev.
•Incentive payments (contra rev) decrease in slow down
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview
Legal Issues
Thesis
Business Model •VISA in final stages of comp. payments related to a number of
suits filed against it individually or jointly w/ Mastercard
Industry (Discover, AMEX, etc.)
Clients •Anti-trust issues
Internal •Contributed to negative bottom line
Future Dev. •VISA cannot restrict network members from offering other
cards
Economic Moat
•Likely “priced” into market in terms of valuation and
Valuation adjusted revenues as a result of increased competition and
consumer choice
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Business Risks
Thesis
•Consumer credit risks
Business Model
•Not really – no direct risk exposure
Industry
•Debit card business = implicit hedge
Clients
•Interchange rate legislation
Internal
•Managed system volume a competitive advantage?
Future Dev. •Anti-trust legislation
Economic Moat •Size becomes disadvantage
Valuation •Increased competition
Risk Factors •Solid Balance Sheet
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Overview Conclusion
Thesis
Business Model
Industry
Buy 40 shares @ $49.75
Clients
Internal
Future Dev.
Economic Moat
Valuation
Risk Factors
Conclusion
3M Innovation VISA– Matthew Hall
by Matt Hall and Dave Gregory
Related docs
