Is Mastercard (MA) Still a Great Investment?

VGI Partners, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. For the twelve months ended 31 December 2021 (CY21), VGI Partners Global Investments Limited (ASX:VG1) generated a net return of -2.5%. VG1’s post-tax Net Tangible Assets (NTA) per share stood at $2.34 as of 31 December 2021. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.

VGI Partners, in its Q4 2021 investor letter, mentioned Mastercard Incorporated (NYSE: MA) and discussed its stance on the firm. Mastercard Incorporated is a Harrison, New York-based financial services company with a $384.1 billion market capitalization. MA delivered a 9.11% return since the beginning of the year, while its 12-month returns are up by 17.25%. The stock closed at $392.06 per share on January 31, 2022.

Here is what VGI Partners has to say about Mastercard Incorporated in its Q4 2021 investor letter:

Mastercard has been a core constituent of the VGI Partners global strategy since 2009. Mastercard is a global payments processor and in an effective duopoly with Visa. The industry benefits from a strong secular trend toward electronic payments over cash and cheques and the COVID pandemic has accelerated this shift.

Mastercard’s share price increased +1% in calendar 2021 despite more than 25% earnings growth. This was due to Mastercard’s market multiple de-rating due to short-term concerns about cross-border
volumes and long-term concerns about disintermediation from fintechs such as PayPal and Square (see the chart below showing Mastercard’s EV/EBITDA multiple during 2021 de-rating from >30x to ~26x).

Whilst the full recovery in cross-border travel has been delayed by the onset of Delta and Omicron, we believe there is significant pent-up demand for travel and that cross-border transaction volumes can exceed 2019 levels by 2023.

Interchange fees have long been a point of contention between the payment processors and merchants so the news that Amazon UK would no longer accept Visa credit cards rekindled fears that there would be a race to the bottom in merchant discount rates. Amazon and Visa have since come to a resolution and we think it is highly unlikely that other merchants will take a similar step. Nevertheless, we are closely monitoring the situation for further developments…” (Click here to see the full text)

Bank

Our calculations show that Mastercard Incorporated (NYSE: MA) ranks 6th on our list of the 30 Most Popular Stocks Among Hedge Funds. MA was in 146 hedge fund portfolios at the end of the third quarter of 2021, compared to 156 funds in the previous quarter. Mastercard Incorporated (NYSE: MA) delivered a 19.36% return in the past 3 months.

In November 2021, we also shared another hedge fund’s views on MA in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.

Disclosure: None. This article is originally published at Insider Monkey.