Western Union (NYS:WU) – mrkt cap $4.13B; Price $11.0; trailing P/E 4.7x
STARTER POSITION INITIATED. Not often do you see an investment grade company trading at 4.7x earnings. WU is the global leader in cross border remittance payments. Their vast and impressive global distribution system along with their commitment to the dividend (~9%) was enough to give it a close look. According to the World Bank, the remittance market has grown over the last several years but WU’s revenue growth has been anemic. There has been a rise in cross border digital trends that has been stealing share and despite WU’s efforts to building a strong digital platform, they are falling behind their competition. Although this is cause for concern, we believe the fears around existential threats are overblown. We are initiating a starter position. Our call with IR/management next week should help us fill the gaps in our knowledge regarding their revenue stabilization strategy.
TFF Group (XPAR:TFF) — mrkt cap €867mm; Price €40.80; trailing P/E 16x
PASS. TFF produces barrels for wineries and bourbon/whiskey distilleries. Due to high working capital requirements – such as the wood needed to be aged for several years – the industry has seen consolidation with TFF being one of the larger players. TFF Group will make over €400mm in revenue for 2023, growing more than 30% from 2022. A large part of TFF’s recent growth has been from a boom in bourbon production with the number of distilleries in USA going from 50 in 2006 to 2100 distilleries today, a CAGR of 26%. Consumer demand for the various alcohols is cyclical and we believe bourbon could see a significant retracement, similar to what happened with vodka in the early 2000s. While TFF has significant competitive advantages, the not-so-cheap multiple along with the hard-to-predict cyclicality will keep us out of the name until a better entry point.
IDT Corporation (NYS:IDT) – mrkt cap $829mm; Price $32.5; trailing P/E 17.6x
PASS. IDT is a mini-conglomerate composed of in point-of-sale services, remittance services and telecom. It has a long history of building up business lines and selling them along with a robust culture built on good capital allocation decisions. The p/e multiple of 17x seems reasonable given certain legacy business lines and their payment solutions business growth. However besides good management, it is difficult to gauge the competitive advantage of the different business units. Furthermore, the business units are not remotely synergetic. Although it seems like this is a well-managed business that could deliver for shareholders, we need both a good jockey and a good horse before greenlighting.