This week, I’ll turn your attention to my selection for CEO of the year in 2011, Ajay Banga, CEO of Mastercard Inc (NYSE:MA).
Kudos to you, Mr. Banga
There isn’t much not to like about Mastercard Inc (NYSE:MA)’s business model or the direction Ajay Banga has taken the company since he became CEO in July 2010.
The biggest concern for the two largest credit card processing companies — Mastercard Inc (NYSE:MA) and Visa Inc (NYSE:V) — is whether or not consumer spending is growing or slowing. If global dollars transacted and volumes are falling, that would mean less processing revenue for these giants. However, I can’t actually recall the last time we saw a steady decline in credit card usage since the deep recession of 2009.
MasterCard and Visa Inc (NYSE:V) have notable advantages over some of the peers in the payment processing sector. Discover Financial Services (NYSE:DFS) and American Express Company (NYSE:AXP) — both of which I think are fantastic long-term buys themselves, may I add — process payments, but also have a separate credit lending division. While this allows these companies to double dip as both the processor and lender, it exposes them to bad debt expenses if delinquencies rise or the economy turns south. As payment processors only, MasterCard and Visa Inc (NYSE:V) are exempt from the negative effects of payment delinquencies and defaults.
Another smart move Banga has pursued is pushing Mastercard Inc (NYSE:MA) into the prepaid debit and payroll card business. The 2010 Federal Reserve payment study, for example, showed that between 2006 and 2009, prepaid debit-card usage increased by nearly 15% per year. That’s a huge market that’s yet to be penetrated and Banga has MasterCard lined up to snare a significant chunk.
International and emerging markets are also a big part of Banga’s plan to generate significant bottom-line growth. MasterCard’s CFO Martina Hund-Mejean noted previously that 85% of all transactions around the globe are still conducted in cash . This leaves Mastercard Inc (NYSE:MA) and Visa plenty of untapped emerging market opportunity left to harness.
A step above his peers
In 2011, Banga won the honor of being my chosen CEO of the year because he led MasterCard to a greater than 50% gain in a year when financials performed abysmally. Today, I can give Banga credit for three additional reasons.
The first is Mastercard Inc (NYSE:MA)’s increased efforts to return money to shareholders in the form of dividends and share buybacks. In February, the company approved a stock repurchase program worth as much as $2 billion and doubled its quarterly dividend to $0.60 from $0.30. Although the new yield is still microscopic at just 0.4%, I doubt too many investors are complaining with the share price up nearly 350% since January 2009.
