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With the growing adoption of electronic payments in emerging markets, global issuance of payment cards is projected to grow 36% to 18.3 billion during 2011-2016.
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(Bloomberg Opinion) -- China’s most ubiquitous company is hiding one of its most valuable assets. That needs to change.Tencent Holdings Ltd., best known for the WeChat messenger that almost everyone in the country uses, has a growing fintech business. But it’s getting overshadowed by the games and social media divisions. By spinning it off into a new company, with a move to a separate listing, management could unlock as much as $230 billion in value. That would make the entity China’s fourth-largest listed company and the world’s sixth-biggest financial services firm.Such a move could help Tencent retake some of the limelight that it’s about to share with Alibaba Group Holding Ltd. once that company lists in Hong Kong. Alibaba’s fintech unit, Ant Financial Services Group, already functions as a separate business with the e-commerce giant holding a 33% stake. At Tencent, fintech and business services accounted for 26% of revenue last quarter. The Shenzhen-based company is due to report third-quarter earnings late Wednesday.I estimate that revenue from Tencent’s fintech business grew in excess of 70% last year.(1) The vast majority of that was payments. Yet Tencent also offers other products such as wealth management and has a 30% stake in WeBank, China’s first online-only bank, which was founded five years ago. Data on its fintech profits are hard to ascertain, yet information disclosed by Alibaba shows that Ant Financial was unprofitable last year, so Tencent could be in a similar boat. That’s not necessarily a bad thing. The two rivals are startups in the classic sense, using fast revenue growth driven by marketing and incentives to gain ground fast. A major reason why both have lost money in recent years is due to low take rates, the commissions received from processing payments, because they’ve offered discounts to consumers and merchants. A turnaround could be near, Sanford C Bernstein senior analyst David Dai wrote in a recent series on China’s fintech sector. He estimates that a maturing market will ease cut-throat competition and allow both companies to take a greater share of the money that sloshes through their payments platforms.As a result, Tencent’s payment business (TenPay) alone could be worth $137 billion, compared to $127 billion for Ant’s AliPay, the Bernstein team figures. HSBC Holdings Plc uses two methodologies(2) to come up with an estimated value of around $128 billion. Throw in the other products, and Bernstein calculates a base-case valuation for Tencent’s fintech unit of $160 billion, going as high as $230 billion. This indicates that 40% to 58% of Tencent’s current market cap is locked up in this hitherto hidden division. Bernstein has a base case of $210 billion for Ant, reaching as high as $320 billion.Payments spinoffs have proven to be lucrative in the past. EBay Inc. proved it with PayPal Holdings Inc. in 2015, with the latter posting a 177% normalized return since then, outpacing the 145% rise in the S&P Data Processing sub-index which includes Visa Inc. and Mastercard Inc. PayPal also trounced both eBay (35%) and the S&P 500 (49%). Square Inc., another payments provider, has been one of the hottest stocks of the past decade, returning more than 590% since its initial public offering in 2015.A more recent example comes from India, where Walmart Inc. is reported to be spinning off payments business PhonePe from local e-commerce company Flipkart Group, which it acquired last year. That transaction could turn a $20.8 billion startup into two unicorns with a combined value of more than $30 billion. Tencent doesn’t need to rush to list this fintech unit. Appetite for mega IPOs is likely to be satiated by Alibaba’s Hong Kong listing and that of Saudi Aramco over the next few months. And there’s a long runway of big startups ready for their moment in the sun. By merely making it a separate entity, management can signal intent and allow investors to start re-rating Tencent’s stock accordingly.An offering may not even be necessary, since Tencent is already sitting on more cash than it needs. Instead, the company could distribute shares in Tencent Fintech to existing shareholders, and then directly list the stock. That’s similar to the approach advocated by activist investor Dan Loeb for a Sony Corp. split.Tencent is sitting on a bright light in this fintech unit. Time to let it shine.(Updates to include reference to third-quarter earnings schedule in third paragraph.)(1) The "others" category includes fintech, cloud, film & TV. Tencent noted that fintech is the major component and gave a figure for cloudbut not content.(2) HSBC Approach 1: valuation per user. Approach 2: Using Tencent operating margins applied to its payments business, then comparing to peers.To contact the author of this story: Tim Culpan at firstname.lastname@example.orgTo contact the editor responsible for this story: Patrick McDowell at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
The British pound has rallied again during the trading session on Monday, as Nigel Farage has suggested that a hung parliament was possible. This has traders getting excited about the possibility of the Brexit deal Dragon on forever, perhaps keep in the UK in the EU longer. At this point though, I think that is probably a nonstarter, as the noise continues.
The British pound is showing some strength on Monday, which has pushed GBP/USD higher while sending EUR/GBP lower. The Canadian dollar is almost unchanged.
If you are looking for a fast-growing stock that is still seeing plenty of opportunities on the horizon, make sure to consider Global Payments (GPN).
Investing.com - The U.S. dollar was lower on Monday as investors remained cautious after U.S. President Donald Trump denied he would roll back tariffs on Chinese goods.
GBP/USD bounced higher on the back of a weaker dollar to start the new week and did not have much of a reaction to weaker than expected UK GDP figures.
It could be a mixed day in Asia after President Trump ambiguously stated he has not agreed to a tariff rollback with China, but talks are moving along “very nicely” and that Beijing wants a trade deal “much more than I do.” Of course, that belies the fact that tariffs are becoming a significant drag on US growth with importers paying a record $7bn in duties in September.
Investing.com -- The British pound surged on Monday as Brexit Party head Nigel Farage said his party won't contest any seats currently held by the Conservative Party at the general election on Dec. 12. The move increases the chances of the Conservative Party gaining a majority at the polls, and consequently implementing the EU withdrawal agreement secured last month by Prime Minister Boris Johnson.
Along with trying to repair its reputation, newly installed CEO Debbie Crosbie is trying to find around £100m in cost savings.
Investing.com - Investors will be focusing on appearances by U.S. President Donald Trump and Federal Reserve Chairman Jerome Powell this week amid fresh doubts over the progress of trade talks between the U.S. and China.
It’s a big week for the markets. UK politics and trade are in focus on the geopolitical front, with the RBNZ also in action. Stats will also influence.
Nov.11 -- Ari Sarker, co-president for Asia-Pacific at Mastercard, discusses the launch of their “Fintech Express” platform in Asia-Pacific, how the platform works, their business strategy, blockchain technology, their pullback from Libra and his outlook for the company. He speaks on “Bloomberg Markets: Asia” from the sidelines of the Singapore FinTech Festival in Singapore. (Corrects spelling of company's name in headline and description. The clip was originally published on Nov. 11)