OzForex Group Limited - What you need to know about this growth stock
Sep 22, 2015 | Team Kalkine
Rising transactions delivering First Quarter growth:
OzForex Group Limited (ASX: OFX) net operating income generated 31.9% year over year (yoy) rise to $25.5 million during the first quarter of 2016. Transactions reached 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. In fact, July delivered outstanding performance, with the gross revenues exceeding $10 million beating historical records. Meanwhile, OzForex Group anticipates 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.
Xero’s Partnership:
OzForex Group recently entered into a strategic partnership with Xero 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 pursuing solid 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)
XERO FPO NZ(ASX:XRO) reported that its operating revenues rose by 77% yoy to $123.9 million in the 2015 fiscal year as compared $70.1 million in FY14. The Paying customers surged 67% yoy to 475,000 during the period. Meanwhile, the constant currency subscription revenues surged 83% yoy to $122.5 million in FY15. The annualized committed monthly revenue (ACMR) soared 71% yoy to $159.3 million in FY15. However, XRO’s net loss after tax increased by 96% yoy to $69.5 million on the back of rise in product development and sales and marketing initiatives. XRO has been launching over 1,000 product updates in its core online accounting solution over the last two years wherein around 600 updates were done during 2015. As a result, the firm also increased its staff by 403 to 1,161 employees. Australia and New Zealand subscription revenues increased by 104% and 41% to $56.5 million and $32.6 million respectively in FY15, as compared to the last financial year. Meanwhile, the Australia and New Zealand paying customers rose by 86% yoy and 35% yoy to 203,000 and 138,000 respectively. United Kingdom’s subscription revenues and paying customers improved by 91% yoy and 77% yoy for 2015 fiscal year. The company continues to focus on US particularly to small businesses who need cloud accounting software. Accordingly, the group’s North America’s subscription revenues and paying customers reported a significant performance, surging 133% yoy and 94% yoy respectively in the 2015 fiscal year. Forbes awarded Xero as the Most Innovative Growth Company for the second consecutive year, while IDC recognized Xero as the fastest growing company in the payroll accounting area which represents 74.7% year over year revenue growth in 2014. IDC also recognized XRO as fastest growing financial applications vendor, as it witnessed 80.3% year over year revenue growth in 2014. Xero is also stepping up its subscriber base. Thus, the partnership of Xero and OFX will prove to be beneficial in the long run.
Stock Performance:
OFX stock delivered a negative year to date returns of 10.8% 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 going forward. Meanwhile, the stock surged over 14.3% in last three months (as of Sep 21), partly driven by the Xero deal. We remain positive on Ozforex stock and recommend “BUY” at current price of $2.52.
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