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Archive for February 22nd, 2010

Western Union 4Q09 – Flat

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23 Feb 2010

From DJ News wire

Fourth-quarter earnings fell 6.6% as the company was pessimistic about business this year. Western Union posted a profit of $223.7 million, or 32 cents a share, down from $239.6 million, or 34 cents, a year earlier. Revenue increased 1.7% to $1.31 billion though it fell about 1% on a constant-currency basis.

Analystsestimates were for earnings of 32 cents on revenue of $1.31 billion.

Operating margin fell to 24.2% from 25.9% because of acquisition costs, reductions in pricing and promotions.

Revenue in the dominant consumer-to-consumer segment rose 1.7% but fell about 2% in constant currencies. Transactions increased 5%, while global-payments revenue grew 4% because of the acquisition of Custom House, a business-to-business payments provider

I would place a solid sell here. WU’s management team may see much opportunity in growing the electronic channel (remitter) from current 2%, however e-channel revenue growth will put them squarely in competition with the banks that serve them (Citi GTS).  This same competitive dynamic will hold for their new business payments group (currently 14% of rev), the core of which is the result of their recent Custom House acquisition.

As they morph their distribution strategy to e-channels and business why are they taking 30% of operating cash ($400MM) for stock repurchases? This does not speak well of internal investment opportunities and a company which  is certain of growth.. It feels like the start of an end game.  Additionally, WU’s current crown jewel (physical distribution) is being threatened in emerging markets by mobile operators leveraging their own agents for money transfer services. Perhaps this is why WU is looking  “up market” into higher margin business payments.

This does not feel like a business plan for a “market outperform” stock to me.  As an investor I would be looking for opportunities that leverage (and enhance their distribution), partnering with other networks (banks, governments and MNOs) will be a key opportunity. Let us see if they the current team can grab it.

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Written by tomnoyes

February 22, 2010 at 5:53 pm

Posted in Uncategorized

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