Moneygram International Inc (MGI): What’s Driving Sales at this Company?

Moneygram International Inc (NASDAQ:MGI)The money transfer industry came under pressure after the 2008 recession. With the high unemployment rate, the remittance business slowed down. But with confidence back in the economy and the unemployment rate on decline, the remittance industry has shown signs of recovery. Moneygram International Inc (NASDAQ:MGI) is the second largest money transfer services company after The Western Union Company (NYSE:WU) with a market share of 5% in the industry. The company is well placed to gain from ongoing macro recovery. Below, I have discussed some of the key reasons that I’m bullish on the company.

Private equity has shown interest in buying out MoneyGram

According to a Reuters report on June 28, four private equity firms Carlyle Group LP, Bain Capital, GTCR LLC and TGP Capital LP are vying for Moneygram International Inc (NASDAQ:MGI). Currently, second round of bidding is in progress. The deal, if successful, may fetch $25-$27 per share, which represents a good upside from the current level.

Improvement in macroeconomic conditions will boost transaction volume and revenue

With an optimistic outlook for the developed economies in 2013-2014, money transfer will increase. Based on the US Census Bureau report to determine the trend in the employment of immigrants in the US, employment has increased in the last 12 months.

With the increase in the housing sector, the construction sector is poised for growth, which has a high number of immigrant employees. So, this will help the money transfer companies. I believe that Moneygram International Inc (NASDAQ:MGI) is going to benefit from this. Also, according to the latest report on overall unemployment, the numbers have been on the decline. So, the boost in employment will help MoneyGram as more money transfer will occur.

New product initiatives will help boost volume and revenue

The company has been focusing on expanding its core services via new channels. Moneygram International Inc (NASDAQ:MGI) online and bill pay transaction grew by 50% in the first quarter year-over-year. The new channel has shown an impressive growth of 31% year-over-year. I believe that the company’s focus on new channel growth and online service offering will gain traction from Xoom Corp (NASDAQ:XOOM) and will help the company increase its revenue. We expect these initiatives will help the company increase its customer base and revenue.

The company has been entering into strategic collaboration to increase its global expansion

Recently, Moneygram International Inc (NASDAQ:MGI) signed an agreement with two postal service providers in Africa. This will help the company improve its money transfers to the African countries. The company also entered into an agreement with Kotak Mahindra Bank in India to improve upon its money transfer services in India. The company has also planned to increase the number of its agents in these countries. These strategies will help the company increase its customer base, which will help it to grow its revenue.

Peer analysis

The Western Union Company (NYSE:WU) is the leading company in money transfer services. It has a market share of 15%. But its competitors like Moneygram International Inc (NASDAQ:MGI) are rapidly making inroads in its customer base. Recently, the company has announced reduction in charges in a few corridors. This was to make its charges more competitive.