1. BOND BEATS – Worldpay

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  2. Some of the best investments can seem invisible at first. Take Worldpay. This is a company that is central to the plumbing of the consumer economy every day, but largely goes unobserved by the customers who rely on it.
  3. In a world where cash purchases are on the decline and e-commerce is on the rise – in 2006, 62 per cent of all payments in the UK were made using cash; by 2016 this proportion had fallen to 40 per cent - Worldpay is part of the technological backbone supporting digital transactions.

    It enables large and small businesses to accept more than three hundred payment methods, from Visa to ApplePay, and is used by customers across the globe. In its tangible form, Worldpay is the machine that scans your card or phone to take payment, but the real story is the behind-the-scenes financial infrastructure that keeps payments moving, checking in real-time for fraudulent transactions.

    We first invested in this company in 2015. It had originally been part of the Royal Bank of Scotland, but was sold to private equity firms, Advent International and Bain Capital, for £2.65 billion after the bank’s bailout by the UK government. The firm issued bonds to pay existing debts and put the company on a secure footing for the years ahead.

    As is the norm at Baillie Gifford, we had a lot of robust debate ahead of buying the bonds. At the time Worldpay was strong in the UK market, but had no presence in emerging markets nor was it a big player in the US. But we liked how it was investing to make the business bigger and stronger.

     

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    It had invested heavily in a new technology platform that captures payment information securely and transmits it quickly around the globe. This was an investment that would lower the costs for each transaction made, turning them into a more efficient business. It had also invested in a series of smaller niche companies, filling in capabilities that it noted it was lacking, and by January 2018 it had merged with Vantiv, the US payment processing company. Vantiv was founded in 1971 to provide electronic fund transfers to financial institutions and went public in 2012. Now with joint headquarters in London and Cincinnati, the merged company can process more than 40 billion transactions annually, close to 8 per cent of all global digital transactions, across 146 countries and 126 currencies.

    Since we purchased Worldpay in November 2015, it has become something of a blue-chip company in our bond portfolio. It has returned more than 6 per cent per annum over the period versus a wider market* return closer to 5 per cent per annum. The company has used debt to acquire and invest, repeatedly demonstrating its willingness and ability to reduce debt levels during those periods when it is not investing in acquisitions to fuel further growth. Its intentions today remain clear – to reduce debt quickly over the next 12 months.

    We think this is very plausible. Global e-commerce is the fastest growing part of its business, serving the complex needs of multinational retailers such as airlines, travel agents, mobile apps and gaming companies who need to be able to accept whatever payment methods their global customer base chooses to use, in whatever currency.

    There are a small number of companies that have the capability to do this at scale. In the US and UK, Worldpay is already able to meet the needs of any large or small business and understands its customers’ needs very well. A new competitor would have to make a substantial investment in technology to even begin to compete and earn trust. This is a dynamic marketplace, but there is a lot of growth in the market and plenty of business to go around.

    In a world where the cash economy is being disrupted, Worldpay is facilitating innovation, helping businesses to embrace the myriad of new payment types now in the market – and making solid returns for its efforts.

     

    Annual Past Performance to 30 September each year

      2014 2015 2016 2017 2018
    Baillie Gifford High Yield Bond Fund (B Inc Shares) % 7.5 -3.1 8.9 9.2 2.1
    *Fund Index: ICE B of AML European Currency High Yield Constrained Index in GBP % 9.0 1.4 9.5 8.9 1.9

     

    Source: FE, single pricing basis, total return. Returns reflect the annual charges but exclude any initial charge paid.  All data as at 30 September 2018 and source Baillie Gifford & Co Limited unless otherwise stated.

    Past performance is not a guide to future returns.

  4. Important Information & Risk Factors

    The views expressed in this blog should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Some of the views expressed are not necessarily those of Baillie Gifford. Investment markets and conditions can change rapidly, therefore the views expressed should not be taken as statements of fact nor should reliance be placed on them when making investment decisions. This blog contains information on investments which does not constitute independent investment research. Accordingly, it is not subject to the protections afforded to independent research and Baillie Gifford and its staff may have dealt in the investments concerned.

    This communication was produced and approved on the stated date and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

    Investment markets can go down as well as up and market conditions can change rapidly. The value of an investment in the Fund, and any income from it, can fall as well as rise and investors may not get back the amount invested. Bonds issued by companies and governments may be adversely affected by changes in interest rates, expectations of inflation and a decline in the creditworthiness of the bond issuer. The issuers of bonds in which the Fund invests may not be able to pay the bond income as promised or could fail to repay the capital amount.

    Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). Issued by Baillie Gifford & Co Limited.  This does not in any way constitute investment advice.