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OzForex Group Ltd (ASX: OFX) hit the ASX boards last October amid great expectations and a frothy IPO market. Its not disappointed early investors though, and confirmed in late November that it? s on track to meet its prospectus’ forecasts for FY 2014. Since the announcement shares have soared more than 20% as investors turn bullish on its growth prospects at home and abroad. In total shares are up nearly 70% on the offer price of $2 per share.
The company raised eyebrows with an IPO valuation of 21.7 times forecast earnings for the 12 months to September 30 2014, with an indicative yield…
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OzForex Group Ltd (ASX: OFX) hit the ASX boards last October amid great expectations and a frothy IPO market. Its not disappointed early investors though, and confirmed in late November that it’s on track to meet its prospectus’ forecasts for FY 2014. Since the announcement shares have soared more than 20% as investors turn bullish on its growth prospects at home and abroad. In total shares are up nearly 70% on the offer price of $2 per share.
The company raised eyebrows with an IPO valuation of 21.7 times forecast earnings for the 12 months to September 30 2014, with an indicative yield of 3.4% based on the IPO price and forecast profit. This included forecast profit growth of 30% in FY 2014 and a mighty 38% in the first six months of financial year 2015, however so far, so good, as the company impresses the market.
The business was founded in 1988 and built by undercutting the dismal foreign exchange rates offered by the big four banks on international money transfers. The client base has largely been retail and small-to-medium size enterprises, often wholesale importers or exporters of goods. The banks will typically charge clients a 2-4% spread, high compared to what a business like OzForex can offer.
It generates profits by aggregating hundreds or thousands of small customer deals and then on-selling the total amount in the interbank market at wholesale rates.
It’s relying on several strategies to grow profits. The Australian market remains its bread and butter with a focus on more online client registrations, customer service, and increased use of mobile services and apps to drive business and retail client numbers, transaction volumes, and general organic growth.
It also wants to expand its International Payment Solutions business for branded partnership clients like Travelex and MoneyGram International. For the first half of FY 2014, 12% of total fee and commission income before other expenses came from this division.
Thirdly, it aims to expand into Hong Kong and the United States. The US market is certainly attractive by virtue of its massive size alone. The company now has operational licenses in 32 states, to cover 75% of the US population, with plans to expand further. For the first half of FY 2014 North America represented 11% of total fee and commission income before hedging and transaction costs. The business is bullish on its prospects abroad, although total North American commission and fee income before hedging and transaction costs was up a modest 9% on the prior corresponding period.
OzForex also has the option to grow acquisitively. Despite FX services being dominated by the big banks until recently, the smaller end of the market remains fragmented, with one competitor, HiFX, already on a potentially crowded radar of acquisition targets.
The investment case appears sound and growth rates are impressive, but the risk remains that OzForex gets a taste of its own medicine if others undercut its own rates to win market share. With the banks said to be considering fight back strategies and large-scale competitors like Western Union fighting hard for their own slice of the action, OzForex’s spreads, fees, and volumes could all come under pressure.
Selling for $3.36 OzForex is trading on a price-earnings of 36 based on prospectus forecasts of earnings-per-share of 9.2 cents for the year to September 2014. The share price appears to have gone from frothy to bubbly with the market reassured on confirmation of FY 2014 guidance and excited by the potential it has for acquisitive growth. It remains reliant on the strength of its core Australian business however, and on short-to-mid-term horizons looks a little expensive to me.
Bullish investors would argue as a disruptor business with a strong brand and first mover advantage it enjoys parallels to blockbuster internet success stories like Rea Group Limited (ASX: REA) or Carsales Limited (ASX: CRZ). Both businesses which have made massive profits for investors who were willing to look past the price to seize the value.
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Motley Fool contributor Tom Richardson does not own shares in any company mentioned in this article. He welcomes feedback on twitter tommyr345.
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OzForex receives a takeover approach from Western Union.
Online foreign exchange company OzForex Group has had a preliminary takeover approach, as revealed by Street Talk Online on Wednesday.
Western Union is understood to be the acquirer. The NYSE-listed giant is taking its counsel from Gresham Partners.
An announcement will be made on Thursday morning.
Macquarie Group - which floated OzForex in 2013 - has been called in as defence adviser. Macquarie was also a shareholder in OzForex before it was listed.
While it is not known how formal or advanced the proposal is, sources said the approach was made in the past fortnight.
Related Quotes.
Company Profile.
Western Union has about 500,000 Western Union Agent locations in more than 200 countries and territories. It is capitalised at $US9.39 billion.
OzForex appointed ASX director Peter Warne as chairman at the time of its ASX listing. Warne will also take the reins as chair of Macquarie next year. Richard Kimber is OZForex's chief executive.
OzForex, capitalised at $626 million, reported a 12 per cent rise in half-year underlying profit to $12.3 million and a 30 per cent rise in revenue to $53 million on November 10.
Statutory earnings fell 6 per cent to $11.2 million due to one-off costs. Total underlying operating expenses rose more than 26 per cent to $35.6 million. These included the cost of rebranding and consolidating seven global brands to one new name, OFX, restructuring its executive team and new pay schemes for employees.
It looks like an opportunistic time to have a crack at OzForex. Macquarie analysts last week noted financial year 2016 would be a transition year with the first half seeing a number of key new senior executive appointments and the global rebrand to be rolled out through the second half.
However, the company is facing stiff competition from offshore competitors Transferwise and World First, who recently entered the market and spending big on advertising and offering better deals.
OzForex shares have risen 16 per cent since June 30.
It's not the first newly-listed company to attract a takeover offer in recent months. Credit credit data giant Equifax tabled a $2.5 billion bid for Veda Group in September, while online comparison website iSelect is considering an offer from Providence Equity Partners.
ASX Announcements.
ASX Announcements.
Chairman: Steven Sargent.
All recent announcements can be found at the ASX (External link)
OFX press release announcing the appointment of a new chief executive and trading update.(5.80 MB)
15 November 2016.
All recent announcements can be found at the ASX (External link)
All recent announcements can be found at the ASX (External link)
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ASX Code: OFX.
The full list of ASX announcements made by OFX can be found on the ASX listing page.
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IMPORTANT: This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited ABN 65 092 375 703 (trading as “OFX”) and its subsidiaries make no recommendations as to the merits of any financial product referred to in the website, or its related websites. Please read our Product Disclosure Statement and our Financial Services Guide.
DISCLAIMER: OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this website. Read full disclaimer. O FX provides international money transfer services to private clients and business customers. Use our free currency converter, exchange rate charts, economic calendar, in-depth currency news and updates and benefit from competitive exchange rates and outstanding customer service.
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*Average savings based on published rates of ANZ, Westpac, NAB and CBA on a single transfer of AUD$10,000 to USD between 1.9.17 and 5.10.17 excluding weekends. Transaction costs excluded. Quoted savings are not indicative of future savings.
The Motley Fool.
The Ozforex Group Ltd (ASX: OFX) share price looks set to fall when it begins trading today after the company made not one but two negative announcements.
The money exchanger says it has terminated takeover discussions with Western Union, because the latter has yet to submit a binding proposal for Ozforex, despite months of negotiations. Western Union had offered between $3.50 and $3.70 cash per Ozforex share in November 2015, but the offer was non-binding, indicative and conditional.
At the time, Ozforex’s share price was $2.61, so the offer was substantially higher than the last trading price. Both Western Union and…
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The Ozforex Group Ltd (ASX: OFX) share price looks set to fall when it begins trading today after the company made not one but two negative announcements.
The money exchanger says it has terminated takeover discussions with Western Union, because the latter has yet to submit a binding proposal for Ozforex, despite months of negotiations. Western Union had offered between $3.50 and $3.70 cash per Ozforex share in November 2015, but the offer was non-binding, indicative and conditional.
At the time, Ozforex’s share price was $2.61, so the offer was substantially higher than the last trading price. Both Western Union and Ozforex have created a niche for themselves undercutting the major currency exchangers (the banks) by offering much cheaper fees and better exchange rates for customers who want to buy or sell currency or transfer funds offshore.
As well as announcing the termination of the deal, Ozforex also cut its forecast earnings for the 2016 financial year (FY16). In November 2015, CEO Richard Kimber announced, “ Ozforex is pleased to re-affirm its FY16 guidance provided at the time of the AGM in August 2015 of $38.5 – $40.5 million underlying EBITDA (earnings before interest, tax, depreciation and amortisation), subject to market conditions. ”
Now the company is forecasting underlying EBITDA for FY16 of $35.0 – $37.0 million, which it says ‘represents growth versus the prior corresponding FY15 period, but is lower than previous guidance provided’.
Ozforex blamed its reduced advertising expenditure associated with the Ozforex brand ahead of its rebranding to OFX and a new website. Decreased volatility in the foreign exchange (FX) markets also cut the trading activity from both new and existing clients compared to expectations.
Investors gambling on the takeover proceeding now face the prospect of seeing the Ozforex share price plunge – although it’s possible Western Union may still make a binding bid at a later stage. The share price closed at $3.09 on Friday.
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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter TMFKinga.
Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 . This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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