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Western Union

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  • Nov 15th, 2012 7:22 pm
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Deal Addict
Nov 11, 2004
3503 posts
615 upvotes
Ottawa

Western Union

Take a look at the Stock.... Just took a Huge dive today.

Thinking about getting some.... Thoughts?
Hello
13 replies
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
there are only 2 types of stocks that drop 30% on earnings call. high flying high multiple momentum stocks, and stocks where people think the business model is under serious threat.

so i guess it comes down to do you think their business model is in trouble.

i thought it was okay before but there may be some new stuff on the conference call. havent listened to it yet so cant say if anything has changed in my view
Deal Addict
Nov 11, 2004
3503 posts
615 upvotes
Ottawa
OK thanks, maybe ill hold off.. From what I can tell they beat Q3 Earnings. Increased there dividend... increased there buyback

Issue was they lowered there expectations for the rest of 2012
Hello
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
they also lowered 2013 operational earnings guidance to 15% below 2012 or something

on the headlines, a stock yielding 3.9% with ~10% long term dividend growth rates should not be selling for 8x 2013 earnings (using the lowered numbers) if it gets back to a more reasonable 10-12x you're looking at a $16-$19 stock. if it gets back to levels its dividend supports (assuming no serious threat to baseline economic model), you're looking at 15x or ~$24. the stock is then 25-40% undervalued.

P/S also seems to indicate the company is undervalued.
typically a 0.8 P/S is normal for a 5% net margin, 5% growth company
Western Union growth is probably around there, but their net profit margin is in high teens / low 20s
using conservative number of 15% margins means 2.4 P/S is more the norm which means the company is worth 5.5B * 2.4 = 13B, which implies 40% undervaluation at its current 7-8B market cap.

put it another way, their 8B market cap is 1.5x sales which means people are either expecting them to be come negative growth, or their economic model producing the 20% margins is at risk of declining to sub 10% margins. considering the industry average margins is 15% according to Morningstar, and WU is best of breed leader in the industry, I dont see the sub 10% margins being that likely. The outlier of course is some disruptive technology that completely changes the industry of money transfer (keep in mind poor people and ones from 3rd world countries make up a large number of ppl using these services, and they're not THAT technologically adaptive)

again, these are based on headline numbers and pre-earnings. i havent reviewed the call yet so it may have more info that changes things.
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
just going thru the conference call now, but from what i can see:

the stock yields 3.9% at a tad under $13, with ~1.60 FY12 earnings and guiding 10-15% decline in 2013 to 1.40 or so mostly due to implementing a price investment plan (consumer value proposition aka price cuts) to capture/retain market share. they've indicated based on experience they expect price investments to payoff after year 1. the pricing investment will be mid single digit % of revenues in 2013, vs 1% in 2011 and 2012. During year 1 they will experience decrease in revenues (15% drop in 2013 likely mostly due to this pricing investment) but expect to experience increased general traffic and revenue growth after year 1.

"By implementing these immediate actions, our goal is to drive market share growth, gain customers and optimize long-term revenue and profitability. Pricing investments typically result in immediate transaction growth and a decline in revenues in the first 12 months, but this is offset by increased customers and usage, typically leading to revenue growth after the first year."

on top of this their implementation of new compliance requirements is denting their Mexico business in the short term but expect to grow it again in 2H2013.

"The biggest impact from compliance-related changes has been in Mexico and Latin America. In Mexico, our Western Union brand is performing largely in line with the market. However, our overall revenue decreased over 20% in the quarter, due to declines in our Vigo and Orlandi Valuta brands.

We ended relationships with over 7,000 Vigo agent locations that could not meet our new compliance requirements. We also experienced operational challenges from related system implementations for our Vigo brand in Latin America, as we move this onto our Western Union platform.

We are executing action plans to address our challenges in this region. We are actively signing new agents for Mexico, including most recently, Banco Ahorro Famsa and implementing consumer and agent marketing initiatives to recapture customers.

We are likely to see similar revenue trends for Mexico over the next few quarters, but we believe we will emerge in back half of 2013 with a stronger network and better consumer proposition, allowing us to drive growth again in this important market."


worldwide economic slow down impacts them big time, as they are essentially a play on global labor, wage, and quality of life differentials

"Our customer count is increasing nicely, up 5% from a year ago, and we continue to expand geographically. Transactions are growing in low double-digits, but principal per transaction is down in part due to de-accelerating trade growth."


they wrap up by saying while they expect FY2013 to be down 10-15% from FY2012 (essentially guiding to around $1.40-$1.45 EPS), they expect to resume positive revenue and operating profit growth in 2014.
Deal Addict
Nov 11, 2004
3503 posts
615 upvotes
Ottawa
Im jumping into it today :)

Thanks for the breakdwon
Hello
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
i picked some up today at 11.95. going to wait a bit and see about next tranche. probably after the election
the US labor market is showing signs of improving,or maybe just election fudge lol. but either way i'd like to add more if overall economy is getting better, since WU is so economically sensitive. any labor market rebound, esp construction & low level labor, is great for them
Deal Expert
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Dec 11, 2005
20136 posts
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Let's put it this way.

When was the last time you used Western Union?
When was the last time you heard of anyone using Western Union?

I think unless this company diversifys their business model, they are going to go the way of the buggy whipp makers. It's yet another example of no business foresight. There is no reason that Western Union shouldn't have total ownership of the online payment space. They had the brand recognition, they had the experience, they had the financial network already built. But instead, they sat on their hands and did nothing, could not see the paradigm shift coming, and they let Paypal take over. By the time they entered the market it was too late. The only way Western Union makes money now is emerging markets and they are going to be rapidly losing that business as well as those markets advance.

It's the same thing that is happening right now in front of our faces with Moneris and Elavon, they're just sitting around doing nothing while Square and Paypal is destroying their whole business model, thinking "it can't happen to US, we are too entrenched!" Thnk again guys.

People buying this stock for the dividend are in for YLO all over again, another crash I predicted a year ahead of time due to their business model collapsing. Hopefully people will listen to me this time.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
brunes wrote: Let's put it this way.

When was the last time you used Western Union?
When was the last time you heard of anyone using Western Union?
oddly enough, I havent used Paypal for a long time either, or know of anyone who uses Paypal
Deal Addict
Nov 11, 2004
3503 posts
615 upvotes
Ottawa
500, 000 locations in approximately 200 countries.
. Over the last twelve years, their market share has increased from 7% to 17%

I have faith in them..

And yes i use Both Western Union + Paypal :)
Hello
Deal Expert
User avatar
Dec 11, 2005
20136 posts
2964 upvotes
Cerenity wrote: oddly enough, I havent used Paypal for a long time either, or know of anyone who uses Paypal
You don't know anyone who has used eBay? Hard to believe.
ilusa wrote: 500, 000 locations in approximately 200 countries.
. Over the last twelve years, their market share has increased from 7% to 17%
Increasing market share in a declining marketplace doesn't have much meaning. People are rapidly moving away from that form of money transfer.

Like I said.. these are the same arguments I heard from people about YLO. You can't always just look at a company's stats, you have to look at the bigger picture. The bigger picture is that online fully-electronic methods of money transfer are going to completely dominate this marketplace. Paypal is the leader followed by Moneybookers/Skrill and the rest of them. Now Google is entering the space with Google Wallet.

And don't even get me started on how mobile to mobile payments is ALEADY shaking up THOSE leaders.

Western Union has no chance here because they squandered their opportunity to see the future and own this market, which was about 7 years ago.
To be nobody but yourself - in a world which is doing its best, night and day, to make you everybody else - means to fight the hardest battle which any human being can fight; and never stop fighting. -- E. E. Cummings
Deal Addict
Dec 11, 2007
1959 posts
582 upvotes
Markham
brunes wrote: You don't know anyone who has used eBay? Hard to believe.
not regularly, no. maybe once in a while for some very hard to find items.
i've only used eBay myself a handful of times over 10-15 years.

actually i take back that i havent used paypal in a while. the Blackvue camera GB was originally using Paypal, but they screwed it up and it was moved it to Google Wallet instead. so technically i did use it, only to get a refund shortly after.

that being said, i only even used Google Wallet or Paypal because there was no other payment option. i would never specifically choose to use Paypal or Google Wallet over others.

Western Union is not a payment business, its a money transfer business. While the two sound similar, they are very different.
1. Trust. it is harder to obtain in the money transfer business than payment business. it might not make any sense, but that is just how it is... a by product of this is that the types of people utilizing money transfer typically want to see a physical agent.

2. Market. a good chunk of money transfer crosses borders, and often is even something like from 1st world to 3rd world country. most payment businesses are domestic as they are consumer oriented, and even when they go international, they tend to not be extremes. how many times have you ordered something from Mexico, or Nigeria? probably not too often, but plenty of people from US/Canada will send money to their relatives in Guatemala or Phillipines.

i do agree with you the business environment will be challenging, but i dont think it is deathly, or anything remotely similar to YLO.
Newbie
Nov 14, 2012
17 posts
2 upvotes
WU can use their size and established moat to push out other competitors; I think they are a great opportunity right now. The company could very well wage a price war to squeeze out competitors subsequently raising prices for profit in a cyclical nature, has a near 4% yield, zero barriers to entry in foreign markets aside from outset strategy (They will be back in Mexico with revision), buy junior competitors, brand awareness for online penetration (which grew substantially in Q3 report). Inflation = profit due to volume usage, fed softening on illegals= higher volume wired abroad, and are now nearly 94% institutionally owned. I think big money firms were talking out of the right side of the mouth slandering the company fundementals and grabbing shares at the 12$ mark with the left side.

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