Morning Note: Market news and updates from Visa and Glencore.
Market News
Scott Bessent told CNBC that the 1 August tariff levels will be temporary if countries are negotiating in good faith. China and the US agreed to extend their tariff truce. India may face a US tariff of 20%-25%, but the final rate is still undecided, Donald Trump said.
French economic growth unexpectedly accelerated in the second quarter, rising 0.3% as inventory building offset weak domestic demand and a drag from trade.
The Fed is widely expected to hold interest rates this evening, despite Trump’s pressure to cut. Jerome Powell may also face multiple dissents from within the FOMC’s ranks. Treasuries rallied with the curve flattening, with yields down 9-10 basis points at the long end. The 10-year yields 4.33%, while gold trades at $3,330 an ounce.
Brent Crude rose by 3% to $72.50 a barrel after President Trump said he is not concerned how sanctions on Russia will impact oil prices.
US equities moved lower last night – S&P 500 (-0.2%); Nasdaq (-0.3%) – with the subdued backdrop continuing in Asia this morning: Nikkei 225 (-0.1%); Hang Seng (-1.1%). The yen gained after tsunami warnings were triggered in Japan and California in the wake of a powerful quake near Russia.
The FTSE 100 is currently 0.4% lower at 9,095, while Sterling trades at $1.3360 and €1.1560. HSBC’s pre-tax profit missed estimates, dragged by impairment losses in Bocom. The lender announced a $3bn buyback. It also said its Swiss private bank is being probed by local and French authorities for alleged money laundering. The stock is down 4% in early trading.
Source: Bloomberg
Company News
Yesterday evening, Visa released results for the three months to 30 June 2025, the third quarter of its FY2025 financial year. The numbers were better than expected, driven in part by growth in the group’s new revenue streams. Despite the strong performance, which has continued into the first three weeks of the current quarter, the company left its guidance for the full year unchanged. In response, the shares were marked down 2% after-hours.
Visa is the world’s largest electronic payments network. It connects 14,500 financial institutions, 130m merchant locations, and 4.8bn cards. Visa is not a bank; it doesn’t lend or take on credit risk. It doesn’t issue cards or place the terminals at the merchant locations. Instead, the company earns a small fee from more than 230bn transactions processed on its network to generate annual revenue of more than $36bn. The company is increasingly evolving into ‘Visa-as-a-Service’ which involves unbundling Visa’s product set to support more customers in more ways across its service stack.
Visa is benefiting from the ongoing shift from cash and cheques to electronic means of payment, and the growth of online retail, contactless, and mobile payment systems. In emerging markets, a lack of physical communication infrastructure traditionally provided a barrier to payments growth, but that has been removed by the emergence of mobile phone technology and a government focus on digitalising cash to reduce the black economy.
In Consumer Payments, Visa estimates a total market of $41tn worldwide, with 56% ($23tn) still available to be served, including $11bn cash and cheque. The company has six areas of focus including: “tap to everything”, token technology, cross-border, affluent consumers, A2A (account to account payments), and credit. Since 2020, the number of Visa tokens has increased from 1bn to 14bn, with adoption led by ecosystem benefits including 5% higher authorisation rates and 30%+ lower fraud.
Growth in Commercial & Money Movement Solutions (CMS, formerly known as ‘new flows’) is expected to outpace the Consumer Payments business over the long term. The company believes the total addressable market of the opportunity is massive – $145tn in B2B payments and $55tn in disbursements/payouts/P2P. Even though yields for these new flows are lower than the consumer business, on average, the business utilises Visa’s existing infrastructure and takes advantage of the company’s massive scale and fixed operating costs, resulting in higher margins.
The group’s third growth engine is Value Added Services that help its clients and partners optimise their performance, differentiate their offerings, and create better experiences for their customers. The company estimates the total addressable market at $520bn, meaning only 2% has been penetrated so far. Visa’s largest 250 clients now use an average of more than 20 value-added services, such as cybersecurity, fraud, data analytics, and AI, all of which enhance the group’s competitive advantage.
During the three months to 30 June, Visa saw healthy business driver trends continue through the quarter and into the first three weeks of July. Consumer spending remains resilient, with continued strength in discretionary and non-discretionary growth in the US.
The results were driven by healthy trends in payments volume (+8% in constant currency, with debit up 9% and credit up 7%), processed transactions (+10% to 65.4bn), and cross-border volume growth (which includes a lot of e-commerce as well as travel, +12%).
Net revenue grew by 14% on a constant currency basis in the quarter to $10.2bn, ahead of the market forecast of $9.84bn and the company guidance for growth in the low double-digits.
Revenue was made up of service revenue (based on prior-quarters payment volume, +9% to $4.3bn); data processing (+15% to $5.2bn); international transaction revenue (+14% to $3.6bn); and other revenue (+32% to $1.0bn). Client incentives, a contra-revenue item, were up 13% to $4.0bn. On the call, the company highlighted that CMS (new flows) rose by 13%, value added services rose by 26%, while Visa Direct increased by 25%.
The group continued to keep a tight rein on costs, with AI driving increased productivity – operating expenses were up 13% in the quarter, primarily driven by increases in personnel, general and administrative, and depreciation and amortisation expenses. Adjusted EPS was up 23% on a constant currency basis, to $2.98, better than the market expectation of $2.85 and company guidance for growth in the high teens.
During the quarter, Visa generated $6.3bn of free cash flow. The group’s balance sheet remains strong, with cash, cash equivalents, and available-for-sale investment securities of $20.4bn at the end of June. The main capital allocation priority is to invest to grow the business, both organically and via acquisition.
Visa also has an ongoing commitment to return excess cash to shareholders. The group has a record of strong dividend growth, with the latest quarterly payout raised by 13% to $0.59. During the quarter, the company also bought back $4.8bn of its stock as part of its $30bn authorised programme.
Back in June, the Visa (and Mastercard) share price fell on concerns that stablecoins might disrupt traditional card payments by establishing a new rival mechanism for settling transactions. This followed the passage through the US Senate of the Genius Act (now fully passed) which establishes a regulatory framework for stablecoins, digital tokens running on blockchain technology that are backed by fiat-currency reserves or some other reference asset. Large merchants such as Amazon and Walmart are reported to be evaluating issuing their own stablecoins in an attempt to reduce acceptance costs. However, there appears to be little incentive for consumers to change the way they pay and join the new network given the immense value the likes of Visa provide in terms of broad utility and acceptance, security, dispute resolution, distribution, technology innovation, financing, cashback, and rewards. Instead, as has often been the case with new technologies, the network providers are integrating stablecoins into their payment rails and are likely to position themselves in the stablecoin settlement process. On the results call, the company highlighted two potential use cases: cross-border money movements and consumer access to dollars in emerging markets.
On the regulatory front, the US Department of Justice (DOJ) has filed a lawsuit accusing Visa of violating antitrust law by suppressing competition in debit card processing by threatening merchants with high fees and paying off potential rivals. Visa will fight the claims, which it calls meritless. Although the company is likely to be forced to alter some of its business practices, we believe its strong (secure and reliable) network will help it to defend its 60%+ market share. We also believe that in the absence of a settlement, it is likely to take several years for the decision/appeal process to reach a conclusion. Visa has a long-term track record of coping with regulatory challenges and has flexibility in its cost base to mitigate any bottom-line impact.
Overall, we believe the long-term growth prospects for Visa remain attractive, more so given the acceleration in recent years in the shift to e-commerce, tap-to-pay, and new digital payments, and in the number of acceptance points at SMEs. In addition, the broad application of digital payments by businesses and government agencies provides a huge market opportunity. At its last Investor Day, the company provided a longer-term revenue growth framework: Consumer Payments at 5%-7% and Commercial & Money Movement Solutions/Value Added Services at 16-18%, with the later moving from a third to a half of revenue over time. This implies total net revenue growth of 9%-12%.
On the call, the company reiterated its guidance for the financial year to 30 September 2025: revenue growth on a constant dollar basis is expected to be in the low double digits and EPS growth is expected to be in the low teens. For the current quarter, the company expects to generate revenue growth of in the high-single-digit to low-double-digit range and EPS growth in the high single-digits.
In the near term, while some short-term economic uncertainty persists, the group remains confident in its ability to execute its strategy and expand Visa’s role at the ‘centre of money movement’. That said, a slowdown in overall consumer spending could be a drag on volumes, although spending across the network is very diversified, be it credit/debit, overseas/domestic, discretionary/non-discretionary spend, and low/high ticket spend. However, the company has previously said that if we do go into a recession, Visa is now stronger in debit – the card of choice in tougher times – than it was in the 2008/09 financial crisis. The group also highlights that if there is a downturn, they have plenty of flexibility on costs and client incentives. Note that half of the group marketing spend is variable.
Source: Bloomberg
Glencore has released its H1 2025 production report ahead of its full-year results on 6 August. The group highlighted lower copper production and a narrowing of its full-year guidance range. The company has also announced a new costs savings plan and raised its through-the-cycle long-term profit target for its marketing unit. Having been heavily oversold earlier in the year, the shares have rallied of late helped in part by a bounce in the copper and coal price. In response to today’s update, the shares are little changed in early trading.
Glencore is a vertically integrated commodities business, with a strong position in the production of copper, coal, nickel, zinc, cobalt, and precious metals, and a unique marketing business which markets and distributes commodities sourced from internal production and third-party producers to industrial consumers. The group’s strategy is to own large-scale, long-life, low-cost Tier 1 assets.
Glencore is a leading producer of metals that are used in low-carbon and carbon-neutral technologies, such as electric vehicles and renewable energy, the outlook for which is underpinned by robust demand and persistent long-term supply challenges. The IEA estimates that by 2050 the metals requirement for clean energy technologies will amount to 2.1x-3.4x more copper than in 2020, 10.8x-30.1x more nickel, and 9.9x-32.9x more cobalt. Given the industry’s supply constraints, the group is also increasing its investment in recycling and circularity.
In 2024, Glencore acquired a 77% interest in Teck’s steelmaking coal business (EVR) for $7bn – the remaining stake is owned by Nippon Steel (20%) and POSCO (3%). The assets complement Glencore’s existing thermal and steelmaking coal production located in Australia, Colombia, and South Africa. The company believes global population growth, increased urbanisation, and a growing middle class should continue to drive long-term demand for steel and the steelmaking coal required to produce it.
Following consultation with its shareholders, Glencore is retaining its coal and carbon steel materials business. The company believes the cash generative capacity of the business significantly enhances the quality of the overall portfolio, by commodity and geography, and broadens the company’s ability to fund its strong portfolio of copper growth options as well as accelerate shareholder returns. Management sees potential upside through synergies as the EVR assets are integrated into the portfolio. The company will continue to oversee the responsible decline of its thermal coal operations.
Glencore recently completed the merger of its Viterra business with industry rival Bunge Global to create a diversified global agribusiness solutions company with significant synergy and re-rating potential. The new combination is well placed to meet increased global demand as well as the ongoing challenge of providing sustainable, traceable food and feed products to customers around the world. As a result, Glencore received 32.8bn shares in Bunge, representing 16.4% of the enlarged company, and $900m of cash. At the current Bunge share price, the holding is worth of $2.5bn and is subject to a 12-month lock-up period. Glencore intends to commence a share buyback programme, underpinned by the value of this shareholding, of up to $1bn, representing c.40% of the current market value, to be completed by the time of its full-year results in February 2026.
Now to today’s update. In the first half of 2025, copper equivalent (CuEq) production rose 5% year-on-year, primarily due to the contribution of EVR’s steelmaking coal volumes. Recent business reviews have confirmed the group’s confidence in delivering its full-year production guidance, with the ranges now tightened to reflect performance to date.
- Copper: own-sourced production fell by 26% to 343,900 tonnes, primarily due to lower head grades and recoveries associated with planned mining sequencing and the resultant ore fed to the plants. Full-year guidance is 850-890kt (vs. 850-910kt previously) and second-half weighted. Costs were much higher in H1, but higher H2 volumes are expected to underpin a full-year unit cash cost outcome broadly in line with previous guidance of c.$1.78/lb.
- Zinc: own-sourced production rose 12% to 465,200 tonnes, mainly reflecting higher zinc grades at Antamina and higher McArthur River production. Full-year guidance is 940-980kt (vs. 930-990kt previously).
- Steelmaking Coal: production of 15.7mt mainly comprises the acquired Elk Valley Resources (EVR) business, which produced 12.7mt in H1. Australian steelmaking coal production of 3.0mton tonnes was 0.4 million tonnes (12%) lower than H1 2024. Full-year guidance is 30-35mt (unchanged).
- Energy Coal: production of 48.3mt was broadly in line with last year, reflecting stronger Australian production offsetting the more recent voluntary production cuts at Cerrejón. Full-year guidance is 90-96mt (vs. 87-95mt previously).
Average realised prices for the group’s key commodities were mixed compared to last year: copper (-4%), Zinc (+1%), steelmaking coal (-39%), and energy coal (-28%).
Following a comprehensive review of its industrial asset portfolio, the company has recognised opportunities to streamline its operating structure to optimise departmental management and reporting. This review has identified c.$1bn of cost savings opportunities (against a 2024 baseline) which are expected to be fully delivered by the end of 2026, with significant savings resulting from these initiatives in the second half of 2025. Further details will be provided with next week’s results.
Glencore’s Marketing business exploits arbitrage opportunities that continuously emerge in commodity markets. It provides a good hedge against commodity price volatility and finances the $1bn base dividend (see below), although clearly there is always a risk of potential losses because of that volatility. For the first half of 2025, the company expects to report adjusted EBIT of c.$1.35bn, comprising a strong metals and minerals contribution, balanced out by the challenging energy market backdrop. This leaves the company on track to hit the middle of its full-year guidance range.
However, with today’s update, the company has also raised its through-the-cycle long-term adjusted EBIT guidance range to $2.3bn-$3.5bn p.a. (from the $2.2bn-$3.2bn which had been in place since 2017). This is despite the loss of c.$0.2bn share of earnings from Viterra (now sold) and has been driven by growth in the core metals and energy businesses, via entry into new markets and expansion of existing product lines, and inflationary progression to today’s dollars. This represents a mid-point increase of 16% from c.$2.5bn (ex-Viterra) to $2.9bn.
Next week’s results will provide more detail on the group’s capital investment programme and strong financial position. Following the decision to retain the coal and carbon steel materials business, the group’s net debt ceiling which shapes its shareholder returns framework was reset at $10bn. When net debt falls below this level (after the base distribution), cash will be periodically returned to shareholders via special cash distributions and/or share buybacks as appropriate.
The dividend policy is to pay a fixed $1bn base distribution from the Marketing business, reflecting the resilience, predictability, and stability of the unit’s cash flows, plus a minimum payout of 25% of the Industrial free cash flow.
At the time of the full-year results in February, the company announced $2.2bn ($0.182 per share) of shareholder returns for 2025, made up of a $0.10 per share ($1.2bn) base cash distribution, together with a ‘top-up’ buyback programme of $1.0bn ($0.082 per share) which was completed in June. As highlighted above, the company has commenced a new $1bn programme covered by the Bunge stake.
Overall, while there is increased uncertainty around the impact of geopolitics in the shorter-term, Glencore remains of the view that, in certain commodities, the scale and pace of global mine project development will struggle to meet demand for the materials needed in the future. Glencore believes it is well placed to participate in bridging this gap, through the flexibility embedded in both its Marketing and Industrial businesses to respond to global needs.
We believe commodities and resource stocks are inexpensive when compared to financial assets and are relatively under-owned in investor portfolios. Furthermore, the mining sector, and in particular Glencore, has a long history of M&A and we expect further industry consolidation in the future. We note that in 2024 Glencore weighted a bid for Anglo American and a deal with Rio Tinto has also been rumoured in the past.
Source: Bloomberg
