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Author: PandaGuy21 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 58  
Subject: Undervalued-- Heres why. Date: 3/18/2008 1:39 PM
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Theres been doubts regarding the true value of Visa. It all comes down to whether the shares outstanding will be around 857M (class A,B, and C) or the 446M (class A only). Another reason why is because of Visa's high number of intangibles, it seems that it will be selling over book value. I think Visa is undervalued relative to of book value AND intrinsic value.

Valuation#1-Book Value
18B IPO (assuming they reflect assets.) 70% intangible leaves:
5.4B in NET TANGIBLE ASSETS.

Valuation#2-Book Value
18B IPO - 10B(redeem from banks)
8B in assets. 70% intangible leaves us:
2.4B in NET TANGIBLE ASSETS.

**Mastercard is current selling EIGHT TIMES BOOK VALUE.**
V#1 x 8 would give us Market Value of 43.2 BILLION (85$ share price)
V#2 x 8 would give us MV of 19.2 (current IPO price)

Valuation #3-Intrinsic Value
(borrowed from Inept One from the other Visa board)
Shares outstanding are:
CLASS A - 446,600,000
CLASS B - 178,190,058
CLASS C - 150,418,508

However, Visa states that 10 BILLION from IPO proceeds are used to redeem 10B in class B and C shares. comes out to around 250M class B and C shares. When shares are in the company treasure, it's to my understanding that they are not counted as shares outstanding. (ie: share repurchases)
Visa will have only 8B remaining paid in Capital, but shares outstanding are now 857-250 = **507M**. At 507M s/o, at 507M s/o x 25 PE(MA) I come to a share price like others have around $88.

Conclusion:
-Some people on the boards claim since Visa's ipo will be trading above book value, it is overvalued. True, But remember, great companies rarely trade at or below book value. Mastercard is currently trading 8x Book.
-I expect Visa to retire their 250M redeemed share to their treasury. (where else would it go, sell it back to stockholders for more cash?) As this happens and s/o is reduced, the intrinsic value in relation to Mastercard's PE of 25, will be 88.

Future outlook: If MORE people think Visa is overvalued than Undervalued than the stock price will go down in the first few weeks.
The only question remains : Do I want to go ALL IN NOW or Dollar Cost Averaging to protect against market volatility? If there were any mistakes in my Calculations please let me know. Good Luck Everyone!

PandaGuy
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Author: IneptOne Big red star, 1000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 53 of 58
Subject: Re: Undervalued-- Heres why. Date: 3/18/2008 11:22 PM
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Note that the A, B, C numbers from my analysis include the $10B worth of redemptions you cite and also further redemptions resulting from what I believed to be a high likelihood that Visa would price at $42, not the $39.50 Visa assumed. The numbers also include redemptions that I assumed would occur if the underwriters' overallotment option is exercised at $42, which I believed to be likely.

The numbers also account for the fact that B-shares convert to A-shares at a rate determined by the price at which the IPO is set. I assumed B:A of 1:0.69 for this purpose.

The share counts are fully factored and representative of what I believe make for a fair valuation. They exclude class CII and CIII shares, which Visa will redeem in October but which will impact EPS until then. C:A is 1:1. The exclude the equity incentive plan, which I believe will be used to enrich executives and should be added to the total.

Note that the IPO has now been priced at $44, which exceeds Visa's greatest expectation. This changes the numbers. There will be more money from the IPO to redeem shares but the shares will cost more to redeem. Further, the ratio of B:A of 1:0.69 will be lower so there will be fewer A-equivalent B-shares to account for (beneficial to the valuation).

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