Yesterday MoneyGram International Inc. (MGI) announced its plans to expand its presence in Malaysia, where the company already functions in over 600 locations with the leading Maybank and other non-bank agents such as International Money Express (58 locations), Prabu Money Transfer (30 locations) and EZ Money Express (5 locations in Sabah). Meanwhile, SMJ is also expected to add 5 locations in Sabah.
MoneyGram initiated its money transfer operations in Malaysia in 2007 with the swiftly growing Maybank that expanded from 58 to over 400 branches nationwide currently, thereby extending elasticity of remittance to any of the 190 countries under MoneyGram’s network coverage.
The expansion is also an attempt to tap the rapidly developing $400 billion global money transfer industry, which grew by 6% year over year in 2010. According to the World Bank, Malaysia holds the sixth position in the list of top 10 send countries and sent more than $7 billion in remittances annually in 2010, primarily to India, Cambodia and China. Hence, MoneyGram intends to explore ample avenues in Malaysia for network expansion and transaction growth.
Money transfer business remains the driving force for MoneyGram. The company has been spreading its money transfer business across the globe through various recognized financial institutions. Despite the company’s network though, MoneyGram has been posting a net loss over the last several quarters, driven by lower revenue per transaction that continues to be within the $50 price band in the U.S.
However, the company is working vigorously to enhance its operating leverage through expense control, reduction in net securities losses and expanding its money transfer transaction volumes. After consecutive negative growth in the prior quarters, even transaction volumes from Mexico and Spain appear to be improving.
Recently, management also indicated that it is mulling over a recapitalization program in order to add stamina to its sagging capital position. The recapitalization program will enable the conversion of the previously held preferred shares held with the company’s investment conglomerate, led by private equity firm Thomas H. Lee Partners (THL) and investment bank Goldman Sachs Group Inc. (GS), into common shares of MoneyGram.
Further, the company continues to explore new growth avenues in untested locations by incorporating latest and flexible technology that facilitates transfers through mobile phones, prepaid cards or ATMs, in order to speed up its money transfer services and enhance the remittance volumes. These efforts also help to retain the company’s competitive vigour, particularly against the steady global growth of its arch-rival Western Union Co. (WU).
Overall, although 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 against other currencies and additional losses in its investment portfolio. This will result from the revamping of the company’s capital position through the successful completion of the recapitalization program followed by a steady economic recovery.
GOLDMAN SACHS (GS): Free Stock Analysis Report
MONEYGRAM INTL (MGI): Free Stock Analysis Report
WESTERN UNION (WU): Free Stock Analysis Report
Zacks Investment Research
