market folly

Continuing our coverage, today we're posting up more notes from the Value Investing Congress.  Below are notes from Chuck Akre of Akre Capital Management.  We've already posted up Akre on using good judgment in investing.  Below is his bullish case for MasterCard (MA).


Investment Idea: Purchase MasterCard (MA)

- Payment network, global GDP summation of transactions.  Royalty business on growth of consumer spending worldwide earning small piece of trillions of transactions across the world. 45% FCF return over last 5 years.

- Requires little capital to grow. 5 years was $680mm capex while after tax NI increase $1,900 over the same time (2002 to 2007).  Pricing power.  People: new CEO is solid. 

- Cash is 85% of world's transactions and MA will benefit from the shift to payments.  37% FCF margins in 2011.

- Management like share repurchase over dividends.  Could repurchase billions annually without levering up.

- ACH is banks system but not handle large number of small transactions rather built to handle few large transactions.


Question & Answer Session

Why prefer MA to Visa (V)? US domestic debit transactions, $0.42 interchange fee - Durbin suggestion to $0.11 per transaction (ended up at $0.22).  MA had mid-teens exposure to US while Visa had much more.  Market Folly note: A previous issue of our Hedge Fund Wisdom newsletter has an in-depth analysis of Visa.

The above notes are courtesy of Kyle Mowery from GrizzlyRock Capital.  Be sure to click here for other presentations from the Value Investing Congress.