Morningstar | Western Union Holds Steady in 2Q
Western Union’s second-quarter growth took a slight step back from a particularly strong first quarter, but held basically steady with results over the past year. We think market conditions remain somewhat difficult, which will make it hard for the company to see any meaningful top-line improvement in the near term. We will maintain our $23 fair value estimate and wide moat rating.In the core money transfer business, revenue grew 3% year over year on a constant-currency basis. Regionally, conditions remained fairly consistent. Western Union continues to see modest growth in the United States and Europe, low oil prices remain a headwind in the Middle East, and Latin America continues to see strong growth. North America and Europe remain the most important destinations for economic immigration in the world, and given current political sentiment toward immigration in these regions, it’s difficult to see a catalyst that will push growth materially higher in the near term.
Growth in electronic channels slowed slightly but remained quite strong in absolute terms, with transaction and constant-currency revenue growth at 26% and 21%, respectively, year over year. We think the ability to maintain strong growth in these channels positions Western Union to maintain overall market share and scale advantage, which we see as the primary foundation of the company's wide moat.
Year to date, Western Union has returned $423 million in capital to shareholders through dividends and share buybacks, or about 4% of its current market capitalization. Given the lack of capital required to operate the business, we think this is the best move for the company. In our view, the primary benefit of tax reform for Western Union is that it frees the company to continue to be aggressive on this front.
Western Union is a holding company. Through its subsidiaries, the company is engaged in money movement and payment services, providing people and businesses with ways to send money and make payments around the world. The company's segments are: Consumer-to-Consumer, which is focused on individual money transfers from one consumer to another; and Business Solutions, in which the company facilitates payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations and individuals. The company's remaining businesses and services include its electronic-based and cash-based bill payment services.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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