Sharewatch: Amex faces tough year but can cope with Trump policy
Published 14/11/2016 | 02:30
Since most of us woke last Wednesday morning it is hard to get the concept of president-elect Donald Trump out of one's head. His success has defied all the rules. We have never before seen a maverick non-politician win such high office; we have never seen 58 million Americans cast their vote for someone who has pledged to tear up treaties with Europe, Canada, China and others; we have never seen such a naked threat of American protectionism and all that means for global trade.
There is hope that Mr Trump will acquire the wisdom that great office brings and all the bluster turns out to be harmless. But with the executive and legislative arms of government in his control, it is a faint hope.
Trump wants to make America "great", but the great thing about America is its ability to throw up extraordinary corporations like the one we are examining today, the phenomenal American Express (Amex), which knows nothing about protectionism. Since the 19th century it has thrived on spreading its charms as widely as possible.
Today Amex is a global payment and travel concern and the largest card company in the world, based on purchases. Headquartered in New York, it employs 54,000 people, is valued at $63bn (€58bn) and its total billed transactions last year came to a staggering one trillion dollars, with 70pc in the USA.
It is hard to believe that this behemoth was founded as an express business to deliver letters and money from eastern cities in the US, to the western frontier by horse or stagecoach. By the start of the 20th century, Amex started to issue money orders and later travellers checks. It launched its first charge card in 1958, with one of the first recipients being Elvis Presley.
The group's credit and charge cards facilitate sales for diverse customer groups, small business and large corporations. Today it has over 117 million cards (57 million in the US), on its propriety network with green, gold, and platinum charge and credit cards. At the start of this century, it issued its black card for the really affluent. While it comes with a substantial fee, it promises to simplify life for the rich - including letting them charter a jet plane or a yacht.
The company is also involved in co-branded cards common among airlines, hotels and retailers like Harrods and Bloomingdale's. Recently its exclusive co-branded card with the giant US retailer Costco, which accounted for 8pc of turnover, was terminated - a significant blow. The company also has a portfolio of cards for small companies and large corporations.
Last year was a challenging one. Revenues fell 4pc to $33bn (€30bn), earnings at $5.2bn (€4.8bn) were down 12pc and its share price lagged the market. To compensate for the difficult trading conditions the company announced plans to reduce costs by $1bn by the end of next year.
Five years ago the shares traded in the mid $40s; today they are $70 (€64) (Less than two years ago they were $95 (€87) but dropped steadily bottoming out at $50 (€46) earlier this year. Investors were not neglected as $5bn (€4.6bn) was returned to shareholders last year through dividends and share repurchases.
Amex faces challenges in addition to economic and currency trends. There is also heightened competition from traditional sources, and new technology and longer-term changes are reshaping the payments industry. However, its competitive advantage is that its customers have traditionally been more affluent than its competitors. Amex has not been sitting on its hands and has concluded alliances with major technology companies and is convinced that its business model can cope.
But what about Trump protectionism - will Amex be able to deal with this? In my opinion, yes, but business this year has become more difficult.
Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.