June 4, 2018 comment and an update for VISA Inc.

Monday was a strong day in the markets as the S&P 500 rose 0.45% although Toronto was up only 0.5%.

Couche-Tard was up 2.3% but remains down about 15% this year. Based on past years, it will not report its results for the fiscal year ended April 30 until about July 12. Its revenues in that year will likely make it Canada’s largest company by Revenue. In last year’s rankings, George Weston was number one at $48 billion based on its December 2016 results. couche-Tard was number For December 2017 it remained at $48 billion. Meanwhile, Couche-Tard’s 2017 fiscal revenues were $U.S. $38 billion or about $49 billion Canadian depending on the exchange rate used.  So Couche-Tard will be close to number one in the rankings based on 2017 results. And due to additional acquisitions I believe it is now easily Canada’s largest company by revenue on a run-rate basis. Possibly news of this development could spark added interest in the company. In addition if its Q4 fiscal 2018 results are good (especially if margins on gasoline in the U.S. have improved) that could spark an increase in the share price. There is also always the possibility that they will report another large acquisition.

P.S. I now see that the Globe and Mail ran a story about Couche-Tard being Canada’s largest company by revenue. They did the story on May 2. I guess it did not generate much interest. To me, it is an enormous and staggering achievement. It deserves more recognition and it will likely get some when the rankings are updated. I believe the Financial Post as well as Canadian Business will be out with profit and revenue rankings later this month.

The report for VISA inc. is updated. Due to a high P/E ratio it is rated only Weak Buy Hold. Even taking into account an expected 28% increase in profits in 2018 (which includes a 10% boost due to the lower income tax rates) the stock is not cheap. However, not that based on its history, there has essentially never been a good time to sell this stock. Pull backs have tended to be modest and temporary.

So far, it appears that VISA is able to have virtually all of the benefits of the lower taxes flow to its bottom line. In competitive industries some of those benefits should be competed away in the form of lower prices. But I have always said that VISA is a duopoly as far as consumers are concerned but a virtual monopoly as far as most businesses are concerned. (Most businesses have no real choice but to accept VISA cards). I would have thought though that industry groups would point to the lower taxes and press for lower interchange fees. Regulators may also be eyeing this. If all of the benefits of lower taxes flow to the bottom line then that would seem to be proof of monopoly power and lack of competition. Regulators would be right to consider if fee caps are required in such a case.