EUR 850.00 For Business Accounts Only

Morningstar | Western Union’s Growth Slows a Bit in the 1Q

Western Union saw its underlying growth flagged slightly in the first quarter, with reported revenue down 4% year over year, and up 2% on a constant currency basis. However, management stated it expects results to improve a bit later in the year and largely held its underlying full-year guidance. We think the company remains poised to maintain its leadership position in the money transfer industry, but don’t see a clear path to better growth. Further, while it has not been an issue to date, we remain concerned about regulatory risk given the current U.S. administration. We will maintain our $23 fair value estimate and wide moat rating.

Growth in the core money transfer business slowed modestly, with this segment flat year over year excluding currency impacts. This slowdown was relatively consistent across regions. We forecast very modest growth for Western Union in the coming years, so the lack of growth this quarter is not overly concerning, but we think it does point to the fact that the macroeconomic and political environment is not especially favorable.

Electronic channels remain the bright spot, with the company seeing 19% year-over-year growth in these channels. 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. Here too, though, Western Union did see growth slow modestly, although the issue seems relatively contained, with management pointing to domestic transactions as the key driver.

Operating margins in the quarter were 18.8%, compared with 19.1% last year. However, management held to its guidance of about a 20% level for the full year, which would be in line with results over the past few years. While management continues to look for efficiencies, we think Western Union would need to see growth pick up in order to unlock the scalability of the business and drive material margin improvement.

Western Union made a number of substantial changes to its GAAP guidance for the year. However, these changes relate primarily to the sale of the Speedpay business and currency movements since the beginning of the year. In our view, the changes to the underlying guidance were not material enough to impact our near-term view or valuation.