1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Julie Young
Julie Young
Articles (1268) 

MoneyGram: A Top Investment in Payments

Improved capital structure and Ripple partnership supporting upside potential

November 10, 2019 | About:

MoneyGram (NASDAQ:MGI) is one of the most progressive, innovative and advanced companies in the fintech payments space – creating a substantial capital appreciation opportunity over the long term. Its business includes a diversified portfolio of two segments that contain both traditional and digital products in the payments space as well as leading advanced technology in blockchain payment tech through its new partnership with Ripple.

The company recently reported third-quarter results that solidified the investment opportunity for the stock.

“Our third quarter results reflect the continued transformation of our business as we increasingly focus on customer experience improvements, cross-border digital growth and industry-leading innovation through our strategic partnership with Ripple,” Chairman and CEO Alex Holmes said.

A look at the third-quarter financials

Highlight: Significant debt capital payoff improves capital structure and cost of capital.


Total revenue was $324.6 million for the third quarter of 2019 compared to $347.2 million in 2018. For the first nine months of 2019, MoneyGram has revenue of $963.8 million compared to $1.1 billion in 2018. Revenue is down $138 million, or 13% year to date, as the company faces tough competition in the U.S. but unlimited growth opportunities internationally.

For the first nine months of 2019, operating income was $39.3 million versus $4.8 million in 2018, representing an increase of 719%. The operating income is helped by a reduction in transactions and operational support expenses at $164.8 million, down from $235 million in 2018. This expense category also includes an accrual of $40 million related to the resolution of the deferred prosecution agreement matter, which is now closed.

In the capital portion of the income statement, the company has made a significant strategic decision to pay down debt capital, substantially improving the capital structure and lowering the weighted average cost of capital. The company announced:

"On June 26, 2019, MoneyGram entered into an amended first lien credit agreement and a new second lien credit agreement, each with Bank of America, N.A. acting as administrative agent. These agreements extended and/or repaid in full all outstanding indebtedness under the Company's existing credit facility."

The debt capital paydown resulted in interest expenses of $24.8 million in the third quarter versus $13.8 million in the year-ago quarter. Overall interest expenses are up in 2019, though they should decline in future quarters. Interest expenses for the first nine months are $52.7 million versus $39.8 million. This has substantially affected the bottom line, but should lead to improvement in the future, especially as operating income continues to increase from lower transactional support costs. On an adjusted basis, the bottom line results are even stronger with a net income of $1.60 million through the first nine months versus $39.9 million.

Overall, the strategic debt capital changes are a huge factor across all aspects of the financials and should also lead to higher future free cash flow projections and a higher discounted cash flow value.


In 2019, total assets of $4.23 billion compared to $4.29 billion in 2018. Cash and cash equivalents are $119.10 million in 2019 compared to $145.50 million in the previous year. Other assets reported a substantial increase to $172.4 million in 2019 compared to $140.7 million in in 2018, up 23%. This gain is heavily attributed to the adoption of ASC 842 – Leases, which adds $42.7 million of right-of-use assets related to the company's operating leases to other assets.

Total liabilities are down 2% to $4.48 billion from $4.56 billion in 2018. Accounts payable and other liabilities are $243.2 million in 2019, also impacted by the adoption of ASC 842 – Leases, adding $45.6 million of lease liabilities. Net debt liabilities are down 6% due to the debt capital payoff. This reduction is helping to lower total liabilities overall, which are down 2%.

For 2019, return on assets using adjusted net income is 0.04% versus 0.93%, down slightly but mostly irrelevant due to a more exorbitant 2019 loss from debt capital payouts. Return on equity is -1% vs. -15%, also mostly irrelevant since shareholders' equity is at a negative $249 million for 2019 and negative $269 million for 2018. In general, these figures are only bound to improve as assets more greatly exceed liabilities from debt payoff and equity turns positive.


MoneyGram has carried over a cumulative net loss of $48.4 million to the cash flow report through the first nine months of 2019, compared to a loss of $11.5 million in 2018. The higher 2019 net loss is heavily influenced by interest expenses, which were made in excess to pay off a substantial portion of debt capital. As a result, net cash from operating activities is down 49% from 2018 at $39 million

The company has used less capital for investing, reporting net cash used in investing of $42.5 million in 2019 versus $44.5 million in 2018. Net cash used for financing increased by 68% to $22.9 million. Principal payments on debts increased by 305% as the company paid off a substantial portion of borrowed capital. As noted:

"On June 26, 2019, MoneyGram entered into an amended first lien credit agreement and a new second lien credit agreement, each with Bank of America, N.A. acting as administrative agent. These agreements extended and/or repaid in full all outstanding indebtedness under the Company's existing credit facility."

The debt capital repayment had a huge impact on cash flow and interest expenses, but it is expected to save a huge amount in interest. As a result of the capital repayment, cash and cash equivalents fell 43% from 2018, though this payoff is expected to have a substantial positive effect on cash flow going forward.

Segment opportunities

Highlight: non-U.S. money transfer transactions reporting a 7% year-over-year growth rate supported by new Ripple partnership.

With the debt capital payoff, the company can focus even more comfortably on the acceleration of its international digital money transfer capabilities, which is where it shines among its competitors. Operating with two segments, global funds transfer and financial paper products, the business' greatest opportunities are in its global funds transfer segment's digital capabilities. This makes opportunities for global funds transfer extremely lucrative, specifically in the global market where few competitors can match the cross-border payments efficiency of MoneyGram.

In 2019, global funds transfer has revenue of $886 million, with $841 million coming from money transfers and $46 million coming from bill payments. Financial paper products has revenue of $78 million, with $41 million from money orders and $37 million from checks.

Management explains that revenue is still unstable, but non-U.S. money transfer transactions are reporting a 2% year-over-year revenue growth rate with a 7% growth rate in transactions. With more than 60% of money transfer revenue international and a solid 2% revenue growth outpacing total revenue, this shows that customers are turning to MoneyGram more heavily for cross-border payments.


  • Signed and launched a new partnership with Agricultural Bank of Egypt.
  • Signed a new agreement with Bank Alfalah to enable account deposits in Pakistan.
  • Integrated Ripple onto the standard Treasury process to execute foreign currency trades 24/7. First money transfer company to utilize blockchain capabilities at scale through the Ripple strategic partnership.
  • First money transfer company to launch Visa Direct.

The company’s Ripple partnership is providing unlimited potential for digital global payment transactions. The technology can be used and integrated into all international markets. The company said:

"Case Example: In Mexican peso, we purchase the cryptocurrency XRP on a U.S. exchange, transferred to an exchange in Mexico and sell the XRP on the exchange in Mexico for pesos all within about 60 seconds. Essentially, we're using cryptocurrency as a unit of measure through the Ripple blockchain."

Alpha opportunity

MoneyGram’s stock has unlimited upside potential as return on assets and return on equity are bound to show steady improvements. Net income should be substantially better in 2020 as interest expense becomes much less of a burden.

The company is in acceleration mode. Its expansion of digital capabilities is broadening to over 60 countries, including 25 countries with MoneyGram Online capabilities. In 2019, international transactions are also an important point of reference with more than 60% of revenues within money transfers coming from cross-borders.

The company’s initiatives translate to improvements expressed in guidance for the fourth quarter. Comprehensively, the pay down of debt capital will substantially decrease interest expense and improve the bottom line net income, where interest expense has been a drag. The partnership with Ripple has unlimited international potential also shown in improvements to the revenue outlook. Both the better capital structure and vast opportunities in international money transfer give the company an opening for market share capture in the near term.

The company’s fourth-quarter outlook reflects the positive sentiment:

Fourth-quarter revenue is expected to be the highest of all four quarters at $330 million. Meanwhile, Ebitda is projected to stay steady at $50 million.

Free cash flow is projected to increase with a rise in Ebit from lower trending transactional costs. Cost of capital is lower due to the debt paydown. Capital expenditures are also trending lower, as shown below:

All of these things lead to an increase in free cash flow projections and discounted cash flow per share.

Overall, this gives MoneyGram an estimated future value of nearly $10. This includes free cash flow per share of 95 cents for 2019, steady free cash flow growth of 6% over the next five years, a terminal value growth rate of 5% and a weighted average cost of capital discount rate of 6%.

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Julie Young
Julie Young is a financial writer with comprehensive experience in the financial services industry. She writes about investments, investment products, financial market news and economic trends. Julie has a Master of Science in finance from Boston College and a Bachelor of Science in finance from the University of Arkansas.

Rating: 0.0/5 (0 votes)


Whkyaw premium member - 1 week ago

The current wright average cost of capital is 11.06%. I wonder why to use 6% rather than 11.06%. The free cash flow growth rate also looks negative.

Julie Young
Julie Young - 1 week ago    Report SPAM

These are optimistic assumptions. Also based on comments from the most recent earnings announcement.

Please leave your comment:

Performances of the stocks mentioned by Julie Young

User Generated Screeners

pascal.van.garsseHigh FCF-M2
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)