MoneyGram Expands in Nordics – Analyst Blog

Expanding its presence across the Nordic region, on Tuesday, MoneyGram International Inc. (MGI) announced its seven-year partnership with Money Transfer International Limited (MTI), a U.K.-based remittance and foreign currency exchange operation, to enhance its money transfer service business by operating on a super agency model in the Nordic region. The super agency agreement with MTI will accelerate growth of MoneyGram’s money transfer service in the Nordic region, which includes strong economies of Denmark, Finland, Norway, Iceland and Sweden.

 

Accordingly, MTI will handle the acquisition, coordination and supervision matters of MoneyGram’s new sub-agents in Denmark, Finland, Norway and Sweden. Moreover, the new sub-agents introduced through MTI will complement MoneyGram’s existing agent relationships in the Nordics. Further, MoneyGram has been associated with MTI since 2006, whereby the latter has helped MoneyGram develop extensive and strong network across the U.K., Republic of Ireland, Czech Republic and Gibraltar. Hence, a modest volume and business growth can be expected out of this alliance.

 

Money transfer business remains the driving force for MoneyGram and going forward, management projects a strong remittance market in the Nordics. In 2008, all the Nordic countries together received an estimated $9.4 billion in remittances according to the World Bank, primarily from the Philippines, Thailand, Poland and Africa. This is almost equivalent to the estimated $9.6 billion in remittances received both by the U.K. and France. Hence, MoneyGram is in the process of evolving advanced ways of consolidating in the region, where it has been operating since 2004.

 

However, the global financial crisis has dampened the growth structure across the money transfer service industry and MoneyGram did not go unscathed. The company’s operating earnings have been marred by several one-time charges and fixed overheads. Moreover, a weak demand growth in highly exposed markets such as Mexico and Spain adversely affects the average fees for money transfer services.

 

The company has several issues to deal with in the near term, such as cost-cutting initiatives, debt-repayment strategy, utilization plans for cash and equivalents and for generating sufficient cash flow for its operations. Unless these concerns are addressed, the company may continue to generate loss in its business.

 

Nevertheless, MoneyGram continues to realign its investment portfolio, expand its market exposure globally and restructure its operations from time to time to overcome the crisis period. We believe that the company has the potential to overcome the impact of the volatile U.S. dollar against other currencies and additional losses in its investment portfolio, once the global economy rebounds to its historical highs.