Viad VVI
January 31, 2002 - 9:48am EST by
dionis589
2002 2003
Price: 24.65 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 2,195 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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Description

VVI has steadily rationalized its portfolio of businesses since the separation from Dial and now two reportable segments remain: payment services and convention and event services (CES). The faster growth, higher and expanding margins of the payment services business are positively shifting the Company’s business mix and it appears that a stand-alone payment services business is the goal. This will likely be achieved through the ultimate sale or spin off of the convention and events services business with proceeds used to better capitalize the payment services business such that growth objectives can be met while retaining and enhancing appropriate credit rating for this business.

The timing of such an event will be determined in part by the pace of margin restoration in CES which collapsed due to a combination of contract mis-pricing and expense issues and the economy. The CEO Bob Bohanon was adamant that these issues are being addressed and the margin will traject back towards the historic 9-10% range. A slower than expected turn in CES remains a possibility, particularly in the face of the economic slowdown, but strong momentum in payment services, significant share repurchase capacity, and the fact that the payment services segment is worth more than the current stock price should mitigate this risk.

With $200 MM of operating income growing at a double digit pace, the payment services business at VVI is clearly worth more than the current market cap. Despite its recent difficulties, CES is a solid business. Revenue is visible and recurring with good cash flow. Assuming CES doesn’t deteriorate materially from current levels, the stock should be well supported in the low $ 20s, particularly as the Company has historically been a buyer of its stock at such levels.

Payment services business consists of Travelers Express(bank checks and money orders) and Moneygram(wire transfers). Growth is being driven by growth in locations/agents for money order and wire transfer services and the signing of new bank customers for bank check services as more and more banks outsource this. The international segment of the wire transfer business is growing, and should grow, at a very rapid rate as immigration grows strongly and the Company identifies new ‘corridors’. Margins are expanding as more payment services volumes are driven over a relatively fixed cost base and as more and more locations/agents provide both money order and wire services.(At present, just 10% do both). Meanwhile, 60% of bank checks are still handled internally but the trend is very much toward outsourcing this – also a big opportunity for VVI.

CES consists of GES Exposition and Exhibits Group/Giltspur. GES is a subcontractor for trade show managers. Revenue is visible and predictable as space typically purchased well in advance and rarely cancelled. Industry growth has been 5 – 7% and has regularly grown even in recession albeit at a much slower rate(0 – 2%). GES is 60% of CES. Exhibits Group(40%) builds and refurbishes trade show exhibits. In periods of slowdown, there is some tendency for clients to favor refurbishment over new build creating some drag on revenue and margin. In addition to the expense issues (concentrated in GES), this may be occurring now. Thus, lower revenue growth and progress on margin restoration is a distinct possibility.

Unless one believes Sept. 11th means no conventions/events going forward, the CEO has opined that in a 'normal' environment it is a $900 MM business that will reachieve 10% margins.

Looking out to 2003, the payment service business will generate income of $ 1.50 per share. Assuming CES revenues are flat at $775 MM and operating margins improve to 7.5% implies earnings power of nearly $2.00. A blended multiple of 15 times would imply upside to only $30, yet we believe once CES is “fixed” the asset value is higher for the company as two separate entities. Management’s history of asset disposition suggest a split of the company is feasible and beneficial to shareholders.

Conclusion: Downside $21 Upside Mid $30’s.

Catalyst

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    Description

    VVI has steadily rationalized its portfolio of businesses since the separation from Dial and now two reportable segments remain: payment services and convention and event services (CES). The faster growth, higher and expanding margins of the payment services business are positively shifting the Company’s business mix and it appears that a stand-alone payment services business is the goal. This will likely be achieved through the ultimate sale or spin off of the convention and events services business with proceeds used to better capitalize the payment services business such that growth objectives can be met while retaining and enhancing appropriate credit rating for this business.

    The timing of such an event will be determined in part by the pace of margin restoration in CES which collapsed due to a combination of contract mis-pricing and expense issues and the economy. The CEO Bob Bohanon was adamant that these issues are being addressed and the margin will traject back towards the historic 9-10% range. A slower than expected turn in CES remains a possibility, particularly in the face of the economic slowdown, but strong momentum in payment services, significant share repurchase capacity, and the fact that the payment services segment is worth more than the current stock price should mitigate this risk.

    With $200 MM of operating income growing at a double digit pace, the payment services business at VVI is clearly worth more than the current market cap. Despite its recent difficulties, CES is a solid business. Revenue is visible and recurring with good cash flow. Assuming CES doesn’t deteriorate materially from current levels, the stock should be well supported in the low $ 20s, particularly as the Company has historically been a buyer of its stock at such levels.

    Payment services business consists of Travelers Express(bank checks and money orders) and Moneygram(wire transfers). Growth is being driven by growth in locations/agents for money order and wire transfer services and the signing of new bank customers for bank check services as more and more banks outsource this. The international segment of the wire transfer business is growing, and should grow, at a very rapid rate as immigration grows strongly and the Company identifies new ‘corridors’. Margins are expanding as more payment services volumes are driven over a relatively fixed cost base and as more and more locations/agents provide both money order and wire services.(At present, just 10% do both). Meanwhile, 60% of bank checks are still handled internally but the trend is very much toward outsourcing this – also a big opportunity for VVI.

    CES consists of GES Exposition and Exhibits Group/Giltspur. GES is a subcontractor for trade show managers. Revenue is visible and predictable as space typically purchased well in advance and rarely cancelled. Industry growth has been 5 – 7% and has regularly grown even in recession albeit at a much slower rate(0 – 2%). GES is 60% of CES. Exhibits Group(40%) builds and refurbishes trade show exhibits. In periods of slowdown, there is some tendency for clients to favor refurbishment over new build creating some drag on revenue and margin. In addition to the expense issues (concentrated in GES), this may be occurring now. Thus, lower revenue growth and progress on margin restoration is a distinct possibility.

    Unless one believes Sept. 11th means no conventions/events going forward, the CEO has opined that in a 'normal' environment it is a $900 MM business that will reachieve 10% margins.

    Looking out to 2003, the payment service business will generate income of $ 1.50 per share. Assuming CES revenues are flat at $775 MM and operating margins improve to 7.5% implies earnings power of nearly $2.00. A blended multiple of 15 times would imply upside to only $30, yet we believe once CES is “fixed” the asset value is higher for the company as two separate entities. Management’s history of asset disposition suggest a split of the company is feasible and beneficial to shareholders.

    Conclusion: Downside $21 Upside Mid $30’s.

    Catalyst

    Messages


    Subjectdisclosure risk
    Entry02/01/2002 09:42 AM
    Memberarc122
    Firstly let me say that I agree with this idea and like yourself think that in most scenarios the downside is pretty limited. I also agree that mid 30,s is a solid estimate of the current upside but the good thing about this is that it should grow at a pretty rapid rate.Just for my own edification what multiple and tax rate are you applying to the two segments.
    There is one risk however that is nagging at me. I have not spokento management about this yet but I would be interested in your thoughts.In the payment services division a large number of VVI's clients are what the company calls under-banked.In many cases I take this to mean that they are illegal immigrants.In the wake of sptember 11 and what we now know about how the terrorists moved their funds , a number of states ( e.g New York ) are starting to demand that companies like VVI are more active in terms of customer disclosure.If this demand gathers momentum my questions are these:
    1/ Will the extra record keeping requirements cut significantly into profitability
    2/ Will many of VVI's existing clients be deterred by greater disclosure requirements

    Subjectupdate
    Entry07/15/2004 03:43 PM
    Memberchris815
    Any thoughts on this idea now that the spin has happened?

    SubjectMoney Remittance
    Entry08/17/2004 10:42 AM
    Memberround291
    Looks like the major banks are making real inroads with the Hispanic populations (they remit the bulk of funds to family members in their native countries). Growing acceptance of consular cards as a legitimate form of identification is opening the way for illegal immigrants to take advantage of traditional banking services. CitiBank is also making a big push in this area...both Citi and BoA have some form of distribution in country.

    Since the spin, Moneygram has not done particularly well. This competitive threat might be a part of the longer term problem.

    ________________________________________________________
    Bank of America Remittance Service for Sending Money to Mexico Grows 1,500 Percent in First Six Months of 2004
    August 17, 2004 10:07:00 AM ET


    Overall sales of Hispanic-related products increased 67 percent

    CHARLOTTE, N.C., Aug. 17 /PRNewswire/ -- Sales of Hispanic-related checking and savings products increased 67 percent in the first half of 2004, including 1,500 percent growth in a remittance service for customers to send money to Mexico, Bank of America announced today.

    "The success of the remittance service, called SafeSend, is one indication how the growing number of Hispanics in the country want specialized banking services," said Javier Palomarez, senior vice president of Marketing and Multicultural Initiatives executive for Bank of America.

    The Hispanic population in the United States grew 13 percent between the 2000 census and July 2003 - almost four times the rate of the total population increase of 3.3 percent, the U.S. Census Bureau reported in June. The U.S. Hispanic population reached 39.9 million in July 2003, the Census Bureau reported.

    Bank of America maintains relationships with 3.9 million, or 57 percent, of the 6.9 million Hispanic households in the bank's territory. Hispanic customers have more than $15 billion in deposits with Bank of America.

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