Morningstar | Western Union Maintains Low Growth Trajectory in 4Q
Western Union’s fourth-quarter results show the company maintaining a steady but slow growth trajectory, and its guidance for 2019 suggests more of the same. This is largely in line with our long-term forecasts for the company. While we think Western Union has positioned itself to maintain its leadership position in the money transfer industry, it is difficult to see a near-term catalyst for much better growth. We will maintain our $23 fair value estimate and wide moat rating. The shares currently trade at a material discount to our fair value estimate, but we would note that, in our view, material political event risk remains under the current U.S. administration.Western Union saw overall revenue decline 3% year-over-year, but, on a constant currency basis, revenue grew 2%. The core money transfer segment saw constant currency growth of 1%, a slight deceleration from recent results. The culprits appear to be North America and Europe. These areas are the primary drivers of the business, and we see little evidence that growth they will see improvement soon, with management’s muted growth guidance for 2019 further supporting this idea.
Operating margins, excluding one-time items, were 19.3% in the quarter, up from 18.0% last year. Full-year adjusted operating margins were 20.1%, a level we expect the company to hold to over time, as limited growth will impede the ability achieve scale.
One positive in the quarter is that the company maintained its momentum in electronic channels, with year-over-year transaction and constant currency revenue growth of 25% and 22%, respectively. We think the company’s strong growth in these channels suggests Western Union can maintain its scale advantage despite any channel shifts in the market.
Western Union returned about $750 million to shareholders in the form of dividends and share repurchases. We like that the company remains active in returning capital, given the asset-light nature of the business and the lack of attractive acquisition targets. For 2018, the company returned almost 90% of its reported earnings. Concurrent with earnings, management announced a 5% increase in the dividend.
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.
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