The Western Union Company (WU)

Equity
US
Financial Services

RISK

RETURN

Key risk factors

Strong trading liquidity

Low price volatility

Sufficiently resilient to price shocks

Key return factors

Excellent dividends

Very strong margins and returns

Slightly undervalued vs peers

Corporate actions & dividendsDividend of USD 0.235 with an ex-date of 14 Jun 2024.

Company profileThe Western Union Company provides money movement and payment services worldwide. The company operates in two segments, Consumer-to-Consumer and Business Solutions. The Consumer-to-Consumer segment facilitates money transfers between two consumers, primarily through a network of third-party agents and sub-agents; and offers international cross-border transfers and intra-country transfers, as well as money transfer transactions through websites and mobile devices. The Business Solutions segment provides payment and foreign exchange solutions, primarily cross-border and cross-currency transactions for small and medium size enterprises, other organizations, and individuals; and foreign currency forward and option contracts. It also offers bill payment services that facilitates payments from consumers to businesses and other organizations, as well as offers money order and other services. The company was founded in 1851 and is headquartered in Denver, Colorado.

Valuation: Slightly undervalued

Multiple

TTM

NTM

P/E

7.20

7.40

PEG

-0.30

P/B

11.10

4.40

P/S

1.00

P/FCF

7.10

7.80

EV/EBITDA

5.80

Based on key historical and expected multiples, the stock is slightly undervalued relative to its peers. Specifically, the stock is cheap' on P/E, undervalued on EV/EBITDA, underpriced on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 2ppts and its growth decelerated by 7ppts in the past month. There is a distinction between the stock's performance and that of its peers from the same country and industry. Over six months its performance trailed that of this peer group by 4ppts and its growth decelerated by 7ppts in the previous month. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 13 and suggests 1% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 18.0. This translates into 40% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 10.0. This is equivalent to 22% downside potential in the worst case.

Profitability: Very strong

RoE

The Western Union Company reported a return on equity (RoE) of 140.7% in the last 12 months, up from 130.9% in FY23. The market consensus projects an RoE of 103.0% in FY24, again ahead of its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 7.6% in the last 12 months, an increase from 7.5% in FY23. The market analysts predict that RoA will be 7.0% in FY24, again stronger than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 20.8%, below the peers. The consensus estimate for FY24 for RoCE is 25.2%, again behind the peers.

Net margin

EBITDA margin

Historically, WU has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 14.1%, down from 14.4% in FY23. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 22.7% in the last 12 months, a decline from 23.1% in FY23.

RoIC / WACC = 3.5(excellent value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.5 in the past several years. This ratio implies a excellent shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

WU reported revenue of USD 4 368mn in the last 12 months, up 0% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 0% from FY23 to USD 1.69. Market expects EPS to reach USD 1.71787 in FY24.Revenue has been declining slowly over the past several years (negative), while Declining revenue and insufficient cost control have resulted in a visible fall in EBITDA in recent years (negative). The combination of deteriorating revenue and poor cost control resulted in a notable fall in EPS (negative). Free cash flow, at the same time, has performed better than EBITDA would suggest, and has been growing slowly. We emphasize the highly volatile dynamics of FCF. On the positive side, revenue dynamics is very stable.

Dividends: Excellent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Moderate

The risk of default is moderate. We note robust profitability and solid return on capital, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth, poor working capital management, and an unfavourable capital structure.

Volatility: Low

In normal market circumstances, WU is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal. We would also like to highlight the minimal intraday volatility of the instrument. Finally, it may be affected by inherently volatile sector.

Stress-test: Modest

In highly turbulent market conditions, WU is as volatile as an index. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low. At the same time, due to inherently volatile sector, its maximum losses could be limited.

Selling difficulty: Very low

WU boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.