Banking on the Underbanked
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The broader financial markets have performed exceptionally well this year with gains of almost 15% year to date. Going into the second half of the year you, like me, may be looking for undervalued companies.
Banking with phones
Last weekend I came across a couple beaten down telecommunications companies while researching the financial services sector. Telefonica (NYSE: TEF) and Blackberry (NASDAQ: BBRY), two of the largest global telecommunication companies, have underperformed their counterparts. However, recent partnerships within the financial sector may bode well for returns in the years ahead.
While banking may seem like a common practice to most of us, a significant portion of the world's population has never been taken advantage of banking services due to a variety of logistical and safety factors. Recent research shows that 3 billion of us are either unbanked or underbanked due to inadequate infrastructure, primarily in the developing world. South America represents a large portion of the underbanked population. Through a recent partnership with Monitise (NASDAQOTH: MONIF), Telefonica may help solve this problem (Monitise, which trades primarily in London, trades in the U.S. under the symbol MONIF. I would advise investors to only purchase these three securities on their primary exchanges in order to avoid the foreign security fees some brokers charge clients.).
The partnership was announced last week by Telefonia Digital, a subsidiary of the greater Telefonica brand. The deal will greatly improve the functionality of Telefonia's mobile financial services platform for its clients. The partnership will leverage Monitise's current portfolio of financial services, which are already used by over a third of the world's largest financial institutions. Through the platform, Telefonica will be able to offer its customers and clients mobile payment, mobile banking, mobile advertising and point of sale technologies with bank-grade security protection.
This partnership will be great for the revenues of both companies. As of the most recent quarter, Telefonica derived 51%, of its revenues from its South American business segment. This partnership bodes well for the company's ability to maintain its impressive market share in the years ahead. For Monitise, the deal gives the company the ability to market to the 316 million subscribers currently using Telefonica Digital as their carrier. More over, I would expect to see other carriers follow in Telefonica's footsteps to remain competitive, and Monitise stands in a strong position to capture this business.
Telefonica isn't the only company looking to benefit from the underbanked community either, Blackberry has looked for partnerships as well. Earlier this year, Blackberry and Monitise launched a mobile payment service in partnership with Indonesia's leading financial institutions. While Blackberry's relevance has been in a steady decline domestically, in emerging markets the company has held up better and has over 50% market share among Indonesia's smartphone users. Users will have the ability to easily manage and send money via Blackberry's already established network. While Blackberry shares have done especially poor as of late, a move significantly lower from here may offer an opportunity to investors looking to benefit from rising incomes and technology levels in emerging economies.
Both Telefonica and Blackberry look inexpensive when it comes to valuation. Telefonica trades at 9 times forward earnings while sporting a 13% growth rate in the year ahead. Blackberry trades without a price to earnings multiple, but does carry a huge cash balance on the balance sheet, leaving the company's price to book ratio at only 0.5.
Investors may consider Telefonica and Blackberry as investment vehicles for exposure to the emerging market telecommunications and financial services sectors. Through partnerships with the mobile financial services leader Monitise, both companies will be able to offer secure banking services to a large portion of the world's financially-underserved population.
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Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!