EUR 850.00 For Business Accounts Only

Morningstar | Western Union Has a Wide Moat but Little Growth

Western Union's primary macroeconomic exposure is to employment markets in the developed world. While conditions have improved somewhat in the United States and in Europe, a region that is about equally important for Western Union, growth remains modest. Additionally, remittances from oil-producing countries have been a headwind at times. As a result, industry growth has been tepid in recent years. At this point, we don't see a catalyst to spark better industry growth.We view political and regulatory event risk as the key consideration for the company at this point. There could be some positive changes for Western Union under the current administration; a general loosening of regulations could reverse some of the recent trend in higher compliance spending. However, any positives are more than offset, in our view, by the anti-immigration stance of the current administration. At a minimum, we think this will mute immigrant population and industry growth, and we see significant event risk if the industry is directly targeted. Given that Western Union’s model centers on immigrants sending money back home and out of the U.S. economy, the current administration’s nativist views would seem to be in direct opposition to Western Union’s business model on multiple fronts. We have not seen any concrete actions that have directly targeted the money transfer yet, but proposals such as taxing international remittances have been floated, and we think investors should keep the possibility in mind. Given Western Union's relatively high fixed costs, any regulatory impact on the top line could materially hit profitability.Another material issue for Western Union is the industry shift toward electronic methods. The company has been building out its presence in electronic channels. This area is still small at 12% of revenue, but transaction growth of 25% in 2018 suggests that Western Union is fully participating in these new methods. We believe the company's aggressive approach is the best strategy from a long-term perspective as Western Union is positioning itself to adapt to a changing industry and maintain its scale advantage despite the shift.