Charles Heenan, investment director of Kennox and co-manager of Kennox Strategic Value Fund (GB00B9B3CY80), likes international money transfer service, Western Union (US: WU). He says the company remains undervalued and is now set to benefit from an upward trend in cross-border remittance payments.
"Office for National Statistics (ONS) data shows an increase in global population movements matched by a growing migrant workforce year on year," he says. "As the world's leading money transfer provider, Western Union should be a beneficiary of remittances from migrants sending money back home to families."
In recent years, increased regulation and clampdowns on money laundering by governments have eaten into profit margins, but this disproportionately affects smaller players and new market entrants, causing a competitive advantage for the bigger established operators.
"At approximately four times the size of its next competitor, the scale of Western Union has enabled it to cope best with these pressures," says Mr Heenan. "The company's recent partnership with UK retailer Sainsbury (SBRY) will help it to consolidate its dominant position and achieve its plan to diversify its network.
"The management team has shown itself capable and unafraid of making difficult decisions - it executed a drastic cut to prices in a specific channel to retain market share in 2012, despite it resulting in a near 30 per cent drop in share price. In retrospect this was the right move and we remain confident in the company's ability to manage growth.
"One of the big worries for the market is technological disruption, mobile phones will likely impact the industry over the next 10 years and this creates uncertainty."
However, Mr Heenan sees this as an opportunity as well as a threat for Western Union. "The local cost base can be significantly reduced as migrants start making mobile payments," he says. "Similarly, recipients of cash transfers are usually based in geographies where cash remains king. Replacement by mobile phones will take much longer."