Time To Take Profits : OZFOREX

Ozforex Group Ltd

        OFX Dividend Details
 
Western Union’s Indicative Proposal: Ozforex Group Ltd (ASX: OFX) recently reported that they got a preliminary, non-binding, indicative conditional proposal from the Western Union Company to acquire the entire shares of the group through a scheme of arrangement. Based on the Indicative Proposal, Western Union Company offered a cash consideration in the range of $3.50 to $3.70 per Ozforex share. On the other hand, Ozforex Group said that they are conducting a due diligence and reviewing the possible retention of management as well as any regulatory approvals. Moreover, management also clarified that Ozforex is well positioned to leverage the expanding digital payments business at domestic as well as at international markets. Meanwhile, the acceptance of this offer would boost Western Union’s digital payments business as the group is making efforts to enhance its digital payments business focus from cash based business.
 

Oz Forex Fee and Commission Income (Source: Company Reports)
 
Solid active clients and transaction value growth during the first half: Ozforex Group delivered a solid turnover of $10 billion for the first time during the first half of 2016, which is an increase by 34% on a year over year basis as compared to the first half of 2015. This increase was attributed to the ongoing increase of its active clients which increased by 16% yoy to 151,100 while the transaction numbers surged by 17% yoy to 392,200 during the period. OFX reported an average transaction value growth of 15% yoy to $25,600. The group continues to make its growth efforts by partnering with Xero, decreased the minimum deal size to $250 as well as launched a mobile transactional application. Meanwhile, OFX reported a 29% yoy increase in its net operating income to $53.6 million during first half of 2016 as well as maintained a solid balance sheet with no debt and has a cash of over $48.3 million as at September 2015, indicating its position to fund further growth efforts. The group is also adding value added services like launching a 24 hour with 7 day a week trading during the second half of FY16 to enable its clients the accessibility to transact even on the weekends, further enhancing its operating leverage. Moreover, Ozforex has built a customer base with recurring revenues, wherein the clients who traded with the group before FY10 are still contributing material fee income enabling the group to generate an outstanding revenue growth from new clients as well as existing clients during 1H16. OFX reported a Global rebrand and is on track to be launched by the end of the fiscal year of 2016.
 

First half of 2016 performance metrics (Source: Company Reports)
 
Trading Scenario: Ozforex Group revenues improved across all of its markets during the first half of 2016 while Australia and New Zealand, and North America reported an outstanding performance. OFX Australia and New Zealand generated a revenue increase of 29% yoy to $30.5 million during the first half driven by its repetitive and quality client base. But, North America revenues surged 57% yoy to $8.7 million in the first half as the group’s accelerated strategy program in the region has paid off. Europe and Asia markets revenues increased by 25% yoy and 35% yoy respectively in 1H16. Meanwhile, the group generated a third of its revenue from customers from more than three years old, driven by its SME’s growth and quality. Ozforex Group reiterated its FY16 guidance and estimate’s its underlying EBTDA to be in the range of $38.5 million to $40.5 million. The group’s solid international presence, growing demand for cross border transactions and increasing smartphone usage would continue to add support to the group’s transaction performance. Moreover, OFX has a track record of recurring customer base and with the decrease in transaction limit, we believe the group is well positioned to add new client base as well. On the other hand, the shares of Ozforex Group rose in the last few days boosted by the news of potential Western Union’s Indicative Proposal. This has placed the stock trading at a P/E of 35.1x and close to its 52-week high price. Based on the foregoing, we put a “SELL” recommendation for the stock at the current value of  $3.47
 
 
OFX Daily Chart (Source: Thomson Reuters)
 

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