Saturday 18 November 2017

Share Watch: Western Union - Transfer from Wild West era to global money giant

Western Union 5-year Share Price
Western Union 5-year Share Price

John Lynch

For those of us over a certain age, Western Union conjures up images of galloping horses, whooping troops, flying bullets and the square-jawed gun slingers whose purpose in life was to rescue the pretty girl.

The cowboy could even be persuaded to entertain with a tuneful reminder that he lived under the 'lonesome pines'. While I can blame this image on too much of my childhood spent at 'the pictures', Western Union had little to do with my heroes like Roy Rogers, Hop-along Cassidy, or The Lone Ranger.

True, they might have tied their trusty 'hosses' up to the hitching post outside the Western Union office, but in the real Wild West, it apparently never had much hassle from cowboys or 'Injuns' in its 19th century efforts to stretch its telegraph lines across the great plains of the United States.

It was, however, the dominant feature of the telegraph industry in the 19th century and it has had a chequered time since. Today it is a global money transfer service, offering reliable ways to send money and payments around the world to its half a million agents in 200 countries, and Dublin is one of its key hubs. Chequered is not an inappropriate word for the life and times of Western Union. In the late 1870s it was acquired by the greatest of the 'robber barons', Jay Gould. But it was also one of the original 11 companies that formed the Dow Jones Index.

It had plenty of ups and downs in the 20th century, including a spell in Chapter 11 during the 1990s. Following complicated financial engineering, the company in 2006 once again became a publicly quoted company.

Immediately it signalled its intention to concentrate on financial services, ending its telegraph and messaging service after 155 years. It also went on the takeover trail.

Today, Western Union's portfolio of products includes a consumer-to-consumer business which accounts for four-fifths of group revenues.

This business facilitates money transfers between two parties primarily through a third party agency. It also includes money transfer transactions through the website and mobile devices.

The consumer-to-business segment is for bill payments to businesses like utilities, car finance and mortgage companies. It accounts for 11pc of group revenue. Finally, its smallest segment is business solutions which are used mainly by SMEs for cross-border and cross-currency transactions.

Revenue in 2014 was $5.6bn, up 1pc on the previous year. Operating profit is up 3pc to $1.4bn due mainly to growth in transactions. The company has a market value of $10bn. Its shares in the last 52-week period showed a modest movement from a $16 low to $22 high; currently they are trading in the $18s.

Examination of its last 10-year share movement shows a high at the end of 2008 of $28 and a low in the same year of $10 a share. Early this year it announced a commitment to extend its share buyback programme to the end of 2017 at a cost of $1.2bn.

Earnings per share are $1.6 up from $1.43 but still lagging that of 2012 of $1.7. Western Union is a solid, cash-rich company with an undemanding price earnings multiple of 11 and a dividend yield of 3.2.

Third-quarter results met expectations and indications are that full year results should meet targets. For some investors Western Union shares are attractive.

The company has a long heritage of serving customers outside the traditional finance institutions. Its 24/7 availability is its biggest plus. However, it faces challenges in the form of increased regulation. The focus is now on preventing money laundering for drug and terrorist activities.

Regulators worldwide are exercising heightened supervision of money transfers and money transfer providers. The new regulations require the money transfer providers to develop systems to prevent, detect and monitor transactions.

Early this year, our Central Bank fined Western Union €1.75m following failures in its anti-laundering process, stating the lack of a robust system.

I'd love to know what the square-jawed gun slinger of my youth would think of that.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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