MoneyGram Expands in Middle East – Analyst Blog

Pursuant to its strategy to enhance presence in the Middle East, MoneyGram International (MGI), a leader in global money transfer, last week announced two separate agreements with United Bank of Egypt and National Bank of Abu Dhabi.

 

The agreement with the Egyptian bank will allow the company to roll out its money transfer service through 43 locations through major cities of Egypt such as Sharkeya, Sohag, El Nobaria, Damettena City, Mansoura, Al Mahala and Bani Sweif.

 

Money transfer business remains the driving force for MoneyGram. The company has been expanding its business across the globe through various recognized financial institutions. While Egypt is currently ranked among the world’s top 10 receiving countries for money transfers, management projects a strong remittance market in the country as well. In 2009, Egypt received an estimated $7.8 billion in remittance according to the World Bank, primarily from the U.S., Morocco, Russia, the United Kingdom and Pakistan.

 

The agreement with the Abu Dhabi bank would enable MoneyGram to provide its money transfer service through the country’s extensively used mobile phone network. Abu Dhabi, the capital city of the UAE, tops the Arab countries for its phone penetration rates, with its subscribers exceeding its population.

 

Industry analysts expect the Saudi telecommunications market to record strong figures in 2010 as well, driven by the continued expansion of the sector and the high consumer spending power. According to the World Bank’s recent estimates, remittances from UAE in the year 2009 ranged between $15 billion and $20 billion.

 

Last year, MoneyGram signed a deal with National Commercial Bank, the largest bank in the Middle East, to offer services via 1,400 ATM locations throughout Saudi Arabia. This area looks promising from the point of view of remittance growth due to its improving economy. Saudi Arabia is a key area for the company’s future growth as 27% of the country’s population is foreign born. The demand for money transfer services is also driven by the growing number of Saudis studying, traveling and working abroad.

 

Earlier during the month, MoneyGram announced its partnership with First Bank of Nigeria to expand its presence in Nigeria. It also announced a pact with Citigroup Inc.‘s (C) banking unit in order to make its money transfer services available to all of Citi’s locations across central US.

 

MoneyGram is aggressively expanding its business worldwide just like its rival Western Union Co. (WU). Earlier during the week, Western Union announced an agreement with OMV Group, one of the largest integrated oil and gas groups in Central Europe, to provide money transfer services in the European region. Western Union has also recently tied up with a leading Turkish bank − Yapi Kredi − to offer its money transfer services through all the 830 branches that span the country.

 

However, MoneyGram has several issues to deal with in the near term, such as cost-cutting initiatives, debt-repayment strategy, utilization plans for cash and equivalents as well as generating sufficient cash flow for its operations. Unless these concerns are addressed, the company will continue to incur losses.

 

Overall, though the current economic turmoil has weakened both the revenue growth and the operating leverage of MoneyGram, we believe that the company has the potential to overcome the impact of the volatile U.S. dollar and absorb additional losses in its investment portfolio, once the global economy rebounds to its historical highs.