Investing In The Unbanked: 5 Possibilities To Consider

Includes: CSH, EZPW, GDOT, MGI, WU
by: Yale Bock

The unbanked is a term used to describe the market for people who do not use or have access to traditional bank services like checking or savings accounts. According to the Idology article, 'Identifying the Unbanked ', there are almost 2 billion possible customers. As such, investors might consider looking at these five firms for exposure to this massive secular theme.

The five companies belong to two different categories. The first group includes enterprises which specialize in money transfers and prepaid cards. These firms include Western Union (NYSE:WU) Moneygram (NYSE:MGI), and Green Dot (NYSE:GDOT).

The second kind of business are pawnshops and the two possibilities are CashAmerica (NYSE:CSH) and EZCorp (NASDAQ:EZPW).

The common characteristics which I believe make these firms attractive include fundamentally sound balance sheets, high returns on capital, and growing markets. All have unique situations which have both opportunity and potential caveats. Let's take a look at the individual companies and what is specific to each.

Money Transfers and Prepaid Cards

According to the World Bank (Money Transfer International press release), the 2008 money transfer industry totaled $283 billion, though some believe the total market is double this size.

Western Union

Western Union is the largest player in the money transfer payment business with almost 500,000 locations.

Here are some of its key financial statistics:

Western Union

Balance Sheet

Total Cash (most recent quarter) 1.38B
Total Debt (mrq) 3.58B
Book Value Per Share (mrq) 1.45
Statement of Cash Flows
Total Cash Flow From Operating Activities 1,174,900
Capital Expenditures (52,800)
Valuation Metrics
Market Cap 11.12B
Enterprise Value (Mar 24, 2012) 13.13B
Trailing P/E (ttm, intraday) 9.74
Forward P/E (fiscal year ending Dec 31, 2013)


PEG Ratio (5 yr expected) 0.89
Price/Sales (TTM) 2.00
Price/Book (mrq) 12.2
Enterprise Value/EBITDA 8.08

Dividends & Splits

Forward Annual Dividend Rate 0.40
Forward Annual Dividend Yield 2.30%
Trailing Annual Dividend Yield 0.34
Trailing Annual Dividend Yield 1.90%
5 Year Average Dividend Yield 1.00%
Payout Ratio 17.00%

(Source: Yahoo Finance, March 24, 3012)

Investment Thesis: Here is the industry leader selling for a forward P/E multiple of less than 10. The business generates over a billion a year in cash and free cash flow. The dividend yield is modest and the payout ratio can be increased dramatically.

Moneygram International: The company is the second largest money transfer agent with over 250,000 locations worldwide.

Here are some of the key financial statistics for Moneygram:

Moneygram International
Balance Sheet
Total Cash (mrq) 522.02M
Total Debt (mrq 810.89M
Statement of Cash Flows
Total Cash Flow From Operating Activities 188,110
Capital Expenditures (44,223)
Valuation Metrics
Market Cap 1.05B
Enterprise Value (Mar 24, 2012) 1.34B
Trailing P/E N/A
Forward P/E (FYE Dec 31, 2013) 13.62
PEG Ratio (5 yr expected) 0.89
Price/Sales 0.84
Price/Book (mrq) N/A
Enterprise Value/EBITDA 5.16
Insider Ownership
% of Shares Held by All Insider and 5% Owners 65%

(Source: Yahoo Finance, March 24, 2012)

Investment Thesis: Like Western Union, Moneygram has a good business which is not capital intensive and that generates a great deal of cash. In the case of MGI, almost $200 million per year.

The main reason behind owning this company is it is essentially a private equity investment. An owner of the common shares is along for the ride with majority owner Thomas Lee Partners (per the most recent annual report for the year ending 12/31/2011):

As of December 31, 2011, THL held approximately 64.1% of our common stock.

A key caveat is the following warning as well:

THL owns a substantial percentage of our common stock, and its interests may differ from the interests of our other common stockholder.

I believe When THL gets a full valuation at a higher price, they will exit as soon as possible. Thomas Lee has owned their piece since the financial crisis in 2008.

Green Dot: The following is a description of the company from Green Dot's most recent earnings release on January 26, 2012.

The Company provides widely distributed, low cost banking and payment solutions to a broad base of U.S. consumers. Green Dot's products and services include its market leading category of General Purpose Reloadable (GPR) prepaid cards and its industry-leading cash transfer network which are available directly to consumers online and through a network of approximately 59,000 retail stores nationwide where 95% of Americans shop.

Here are some key financial statistics for Green Dot:

Green Dot

Balance Sheet:

Total Cash (mrq):


Total Debt (mrq)


Book Value Per Share (mrq):


Income Statement

Revenue :


Qtrly Revenue Growth (yoy):


Gross Profit :




Net Income Avl to Common :


Diluted EPS :


Cash Flow Statement

Operating Cash Flow :


Capital Expenditures


Valuation Measures

Market Cap (intraday)


Enterprise Value (Mar 24, 2012)


Trailing P/E


Forward P/E (fye Dec 31, 2013)


PEG Ratio (5 yr expected)




Price/Book (mrq)


Enterprise Value/EBITDA


Investment Thesis: Green dot is growing quickly, as the most recent earnings report states its expectations for the upcoming year:

In 2012, Green Dot expects another year of very strong top-line and bottom-line growth. Non-GAAP total operating revenues are expected to grow 20-24%, based upon the following year-over-year assumptions:

  • A greater than 20% improvement in the average number of active cards

  • Growth in cash transfers of greater than 20%, and

  • GDV growth in excess of 30%

Adjusted EBITDA growth is expected to be 20-24%, reflecting investments the Company continues to make in new growth initiatives.


The pawn shop industry is large with industry estimates pegging the total size at 6 billion dollars. The two leading publicly traded companies have a total of almost 1,600 locations and combined revenue of 2 billion dollars. They both have strong balance sheets, highly profitable growing businesses, and the ability to grow for a long time. Here are more details on each company:

Cash America International

Cash America International

Balance Sheet

Total Cash


Total Debt


Book Value Per Share


Income Statement



Qtrly Revenue Growth


Gross Profit




Net Income Available to the Common


Diluted EPS


Qtrly Earnings Growth


Cash Flow Statement

Operating Cash Flow


Capital Expenditures


Valuation Metrics

Market Cap


Enterprise Value


Trailing P/E


Forward P/E


PEG Ratio






Enterprise Value/EBITDA


Source: Yahoo Finance

Investment Thesis:

Cash America is the largest pawn shop chain in the United States by revenue. The price is currently cheap on an Enterprise Value/EBITDA, Forward and Trailing P/E, and PEG ratio basis.


Balance Sheet
Total Cash 22.87M
Total Debt 40.50M
Book Value Per Share 13.86

Income Statement

Revenue 899.36M
Qtrly Revenue Growth 13.70%
Gross Profit 534.94M
EBITDA 208.36M
Net Income Available to the Common 134.08M
Diluted EPS 2.66
Qtrly Earnings Growth 43.50%
Cash Flow Statement
Operating Cash Flow 157.06M
Capital Expenditures (34,776)
Valuation Metrics
Market Cap 1.62B
Enterprise Value 1.64B
Trailing P/E 12.12
Forward P/E 9.21
PEG Ratio 0.70
Price/Sales 1.79
Price/Book 2.31
Enterprise Value/EBITDA 7.88

Source: Yahoo Finance

Investment Thesis:

EZCorp is another pawn shop chain which is inexpensive on a Enterprise/EBITDA, Trailing and Forward P/E Multiple, or PEG Ratio basis.

The Bottom Line:

Each of these companies can give an investor exposure to the massive market for unbanked consumers. I personally believe the best buying opportunity is with Cash America, but only time will tell how accurate the thesis is.

Disclosure: I am long MGI, WU, GDOT.

Additional disclosure: Y H & C Investments, Yale Bock, and clients of Y H & C Investments own the common stock of WU, MGI, and GDOT

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