Leading money transfer company,
Western Union Co.
) received a negative rating action from rating agency Fitch
ratings, which dragged down the Issuer Default Rating
("IDR") and all senior unsecured ratings of the former to 'BBB+'
from 'A-' . The ratings also carry a negative outlook.
This downward rating action reflects Western Union's lowered
guidance for 2013 compared with expected 2012 results. Western
Union also forecasts a decline in net income by 10%-15%. The
rating agency is concerned with declining pricing for remittance
service in some international markets, where the company has lost
its market share.
Western Union is facing compliance-related issues in Mexico
and Latin America. In Mexico, overall revenue decreased due to
deterioration in its Vigo and Orlandi Valuta brands. Western
Union ended its relationships with over 7,000 Vigo agent
locations that could not meet the new compliance
The company has also experienced operational challenges from
related system implementations for its Vigo brand in Latin
America. The rating agency believes that though the price decline
will help the company to gain back its lost market, bottom-line
margins will shrink due to lowering of prices, thus compressing
Western Union is also lagging behind in its technology
offerings, and is aggressively seeking to invest in these fields.
Fitch is of the opinion that this particular step will increase
company's operating expense. Also, the rating agency believes
that the recent dividend increase of 25% by the company is more
than it can afford.
However, the rating agency noted that the Western Union's
traditional business remains strong. The company continues to
hold a strong brand name. The rating agency also notes that cash
remittance, in which the company holds a major standing, will
continue to constitute a major component of overall remittance
market, thus limiting the potential competition from cash-less
based remittance alternatives.
Western Union's key positives include a globally diversified
business operation, a wide agent network and a low cost variable
operating cost structure.
The company may see a further negative rating action if
compliance risk results in any unseen liability; less remittance
thus uprooting its traditional physical transfer business;
operational risk from excessive use of cash for dividend payment
and share buyback.
MoneyGram International Inc.
) carries a 'B+' rating from Fitch.
Western Union currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. We are also maintaining
our long-term Underperform recommendation on its
MONEYGRAM INTL (MGI): Free Stock Analysis
WESTERN UNION (WU): Free Stock Analysis
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