Positive First Quarter Performance: OzForex Group Limited (ASX: OFX) also posted encouraging first quarter of fiscal year 2016 performance, with the net operating income surging 31.9% yoy to $25.5 million. The increase in transactions contributed to this increase, reaching over 193,000, which is an increase of 22% on year over year basis while the active clients reached 148,000 by the end of the period. The month of July witnessed outstanding performance, with the gross revenues exceeding $10 million beating historical records. Meanwhile, the group expects to double its revenue in three years via its Accelerate Strategy. OzForex forecasts a more than >$200 million of revenue by 2019, driven by global payments markets. The group expects its EBITDA to be in the range of $38.5 million to $40.5 million for the current fiscal year and estimates to incur further costs of $20 million for FY17 and FY18.
OFX Dividends (Source - ASX)
Growth Potential: OzForex Group recently entered into a strategic partnership with Xero, a leading cloud accounting software for small business, to enable smooth international payments for Xero customers. Xero’s Australian customers can use the OzForex platform to perform international payments while the API connection rollout would happen soon at other countries for Xero clients. To achieve its revenue target, OFX is making tremendous efforts to improve its global penetration and is offering customers cheaper means to make international payment transactions outside the corresponding bank network. The group has already built a track record of offering competitive prices to customers who wants to send and get foreign currency for transactions above $1,000, which contributes 88% of the group’s transactions. But the group is now focusing on transactions which are in $250 to $1000 range, which accounts only 10% of the group’s transactions.
Growth Opportunities (Source: Company Reports)
Stock Performance: The shares of OFX have been under pressure during the year, generating a negative year to date returns of 8.5% as investors were concerned on the group’s growth potential. On the other hand, the group has addressed these concerns through its Xero deal and accelerated strategy. Moreover, OzForex focus on $250 to $1000 category might further strengthen its transaction volumes.The group’s stock jumped 27% in just last four weeks, driven by the Xero deal. We were always positive on Ozforex stock and have been recommending investors to add this stock in their portfolio. Despite such a huge recent rally, we believe that the stock has lot of room for further growth and accordingly would recommend investors to stay invested or “BUY” OFX at current price of $2.59.
G8 Education Ltd
First half of 2015 Performance: G8 Education Ltd (ASX: GEM) had 457 centers in Australia and 18 centers in Singapore, after adding 21 new centers in first half of FY2015. The group is yet to settle 17 more centers, and post this GEM would have 35,125 licensed places in Australia. GEM has been delivering good performance despite concerns on its organic growth, and reported 5.6% yoy revenue growth (for its 229 centers-Like for Like growth). Wages and Rent expenses grew 1.9% and 3.2%, in line with the expenses. But, center EBIT surged 17% yoy in 1H15, while the EBIT margin rose 200bps to 21.4%. The group also delivered a solid underlying revenue growth of 63% on a year over year basis to $118.5 million during the first half of fiscal 2015 (including acquisitions growth). Accordingly, the underlying EBIT margins also surged to 17.7% in 1H15, as compared to 16.5% in 1H14. The Underlying EPS soared 60% yoy on a year over year basis to 1H15.
Like for Like center EBIT growth for acquisitions by year (Source: Company Reports)
Affinity acquisition: G8 Education had finally acquired 46.1 million of fully paid ordinary shares of Affinity Education Group for $0.7 per share. The group proposed one G8 Education share for every 4.25 fully paid ordinary Affinity shares. G8 also included a new $50 million undrawn senior debt facility with Bank of Western Australia. Recently, GEM proposed a market cash offer of $0.8 fully paid ordinary share of Affinity Education, and would fund the offer through proceeds of the debt issue.
GEM Dividends (Source - Company Reports)
Stock Performance: The shares of GEM have been under pressure since its all-time high levels, which the stock touched during the September 2014 and fell more than 36% over the last year. The stock fell 20.4% during this year to date, on concerns of its funding capacity for further acquisitions. On the other hand, the affinity acquisition and debt raising programs have offered some support to the stock, and consequently rose over 5.7% since last five days (Aug 14-20 trading days) despite the fall of 1.8% in the broader S&P/ASX 200 index for the same period. Moreover, with over $3.5 billion worth of government’s federal budget allotted to childcare, the number of children might grow in future and subsequently drive the group’s price per child revenue and then the top line, if more parents start working. GEM is also an expert in deriving synergies through acquisitions, which was reflected during the first half year’s EBIT growth. We have been always bullish on this high dividend yield (7.4%) stock, and reiterate our “BUY” recommendation at the current price of $3.32.
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