Digital Investments Will Expand Market Share In Latin American Remittance Market

Key Takeaways

• Strategic investments in digital growth and acquisitions are expected to enhance revenue, operating margins, and cost efficiencies, boosting earnings.
  
• Leveraging a strong cash-generating retail arm, Intermex aims to fuel digital market expansion, supporting free cash flow and financial flexibility.
  
• Reliance on retail amidst digital growth and macroeconomic challenges may pressure Intermex's margins and revenue, with increased costs potentially impacting profitability.

Catalysts

Operates as an omnichannel money remittance services company in the United States, Latin America, Mexico, Central and South America, the Caribbean, Africa, and Asia.

• International Money Express is accelerating its digital growth efforts, expecting the digital remittance market to Latin America to grow, and aiming to capture a larger share efficiently by leveraging improved unit economics. This should positively impact revenue growth and operating margins.
  
• The company is strategically investing in marketing and infrastructure to scale its digital operations, with digital transactions already yielding higher gross margins than retail transactions. This is expected to improve net margins over time.
  
• The recent acquisition of Amigo Paisano brings opportunities for improved unit economics and leverage of acquired talent, boosting digital segment performance. This acquisition is expected to drive both revenue growth and cost efficiencies, enhancing earnings.
  
• With a strong cash-generating retail business, Intermex plans to use the cash flow to fuel expansion into digital markets, thereby enabling continued investment in high-return areas. This approach is likely to support free cash flow growth and financial flexibility.
  
• Their M&A strategy, highlighted by successful integrations such as La Nacional, focuses on driving growth and profitability, reinforcing their ability to expand market presence and improve earnings.

International Money Express Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming International Money Express's revenue will grow by 5.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.9% today to 7.7% in 3 years time.
• Analysts expect earnings to reach $59.9 million (and earnings per share of $2.63) by about March 2028, up from $58.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 6.8x today. This future PE is lower than the current PE for the US Diversified Financial industry at 15.4x.
• Analysts expect the number of shares outstanding to decline by 6.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

International Money Express Future Earnings Per Share Growth

Risks

• The macroeconomic challenges in Mexico, a significant market for Intermex, have led to a slowdown in remittance growth, which negatively impacts revenue and potentially pressures margins due to increased competition for a smaller pool of transactions.
  
• The transition from retail to digital channels in the remittance market, particularly where digital transactions are growing faster than retail, poses a risk to sales as Intermex is still heavily reliant on its retail business, which may decline as digitization progresses.
  
• Increased investments in digital marketing and customer acquisition, while necessary for growth, might lead to increased costs in the short term, potentially impacting net margins and profitability if returns on these investments don't meet expectations.
  
• Uncertainty in political and macroeconomic conditions in key Latin American corridors, such as potential changes in US immigration policy, could affect the flow of remittances, thus impacting revenue and earnings forecasts.
  
• With competitors scaling down in retail but growing their digital presence, there may be increased pressure on Intermex to maintain its market share and profitability in both retail and digital segments, risking both margins and revenue if digital growth doesn't offset retail declines.

Valuation

• The analysts have a consensus price target of $20.75 for International Money Express based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $23.0, and the most bearish reporting a price target of just $17.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $773.1 million, earnings will come to $59.9 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 7.9%.
• Given the current share price of $13.07, the analyst price target of $20.75 is 37.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.