# OFX - OFX Group



## System (5 October 2013)

The OzForex Group (OFX) is an international payments specialist. The Group provides online international payment services for consumer and business clients. It enables clients to make international payments from one bank account to another bank account, in over 50 currencies and more than 900 currency pairs.

The Group also provides a range of international payment solutions to partner companies which assist them to offer international payment services to their end-users.

OFX is expected to list on the ASX on October 11, 2013.

http://www.ozforex.com.au


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## SuperGlue (27 May 2014)

*Re: OFX - OzForex Group*

OFX got slammed down 18.5%

Fund managers not happy with financial results?

That 's what forex business is all about.
Getting Slammed.


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## VSntchr (27 May 2014)

*Re: OFX - OzForex Group*



SuperGlue said:


> OFX got slammed down 18.5%
> 
> Fund managers not happy with financial results?
> 
> ...




LOL!

First time I've looked at anything from this business was the preso this morning.

Seems like alot of the metrics are tracking ahead of pro-forma forecasts (rev, ebit etc), however expenses are matching this trend.

I would think that the sell down would be based on the concern that the number of active customers (i.e. the fundamental growth driver) of the business has not been meeting expecations. The preso gives this lip service, but without a track record as a listed company perhaps investors are not buying it....


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## msarpi (20 November 2014)

*OzForex shares drop 8%*

Ozforex is down 5 % today and down 42% from high of $ 3.50 company still looks expensive, with PE over 30.


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## So_Cynical (20 November 2014)

*Re: OzForex shares drop 8%*



msarpi said:


> Ozforex is down 5 % today and down 42% from high of $ 3.50 company still looks expensive, with PE over 30.




Might have something to do with this.

http://www.abc.net.au/news/2014-11-...losure-as-banks-set-to-close-accounts/5902826



			
				abc.net.au/news said:
			
		

> The international money transfer sector is uniting to try to stop Australian banks from shutting down the industry this month.




The forex company i use only has one account (NAB) left, the smaller remittance company's, 200 of them are being forced out...dam shame as they provide a great, low cost service.


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## msarpi (20 November 2014)

*Re: OzForex shares drop 8%*



So_Cynical said:


> Might have something to do with this.
> 
> http://www.abc.net.au/news/2014-11-...losure-as-banks-set-to-close-accounts/5902826
> 
> ...





I would say it has nothing to do with it, if anything it would help OzForex. I think it has been over priced and most brokers do not understand the business. Growth rates have simply not been achieved .


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## VSntchr (14 April 2015)

*Re: OFX - OzForex Group*

With the FY result out next month I have been having a decent look at OFX.

It certainly ticks alot of boxes at first glance: 21c per share net cash (no debt), very very high returns on invested capital, negative working capital, extremely capital light with low demand for re-investment.

Growth rates have been very high with all geographical segments trending in the right direction. Australian revenue and earnings are still the major driver for the business but it seems that the USforex segment is growing quickly and judging by commentary it appears to be a major focus of the company to drive future growth.

There are a few quirks needed to value this business, and I have seen a few experts tout it as wildly expensive. I presume they are using a ROE x Reinvestment type method, as I dont think it looks expensive at all - closer to fair value in my opinion.

The loss of the Westpac banking relationship in combination with the CEO leaving somewhat prematurely after listing has weighed on the stock, which has been trending around the 2.20-2.50 level.
I don't think it's a screaming buy at the moment but the results next month should deliver more insight into how the US operations are performing.


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## skc (14 April 2015)

*Re: OFX - OzForex Group*



VSntchr said:


> With the FY result out next month I have been having a decent look at OFX.
> 
> It certainly ticks alot of boxes at first glance: 21c per share net cash (no debt), very very high returns on invested capital, negative working capital, extremely capital light with low demand for re-investment.




Isn't that cash the account balance of it's customers? It's $157m cash is simply balanced out with $106m of creditors.

It's a bit like a broker's balance sheet. Lot's of cash... but they belong to the customer, not them.


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## VSntchr (14 April 2015)

*Re: OFX - OzForex Group*



skc said:


> Isn't that cash the account balance of it's customers? It's $157m cash is simply balanced out with $106m of creditors.
> 
> It's a bit like a broker's balance sheet. Lot's of cash... but they belong to the customer, not them.




Yes your correct to net the client liabilities but 51m net cash is divided over 240m shares to give approx 21c per share cash..unless I am missing something.


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## Ves (15 April 2015)

*Re: OFX - OzForex Group*

They're saying in the HY preso that half of the operating cost base is denominated in non-AUD,   what does this mean for margins going forward given the AUD isn't 90-100c (USD) any more?


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## VSntchr (15 April 2015)

*Re: OFX - OzForex Group*



Ves said:


> They're saying in the HY preso that half of the operating cost base is denominated in non-AUD,   what does this mean for margins going forward given the AUD isn't 90-100c (USD) any more?




Yep. Promo expenses (google ad words) is USD so expect to see a big jump in that account. 
FY14 was 10.7m, so lets assume 15% increase in cc expense due to growth = $12.3m, now adjust for the drop in the dollar of say ~20% = $14.8m. There would a certain % of employee costs that are USD, but also some would be EUR, CAD, HKD etc..so hard to quantify the impact on the rest of the non-AUD cost base.

This must be compared to the growth in foreign currency earnings that the group is achieving, which are  translated back to AUD for reporting. Currently, Australia is about 3x the earnings of any other geographical segment; but Europe and the US are becoming meaningful contributors and with their large market size could eventually overtake the Aus business.


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## prawn_86 (15 April 2015)

*Re: OFX - OzForex Group*



VSntchr said:


> but Europe and the US are becoming meaningful contributors and with their large market size could eventually overtake the Aus business.




The US is a tough market to crack in the FX game and from what i have seen they haven't had any more success than a number of other firms, due to a number of reasons (cultural and others) banks still dominate this field in the US


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## tinhat (28 May 2015)

*Re: OFX - OzForex Group*

Thanks AMP for dumping your shares. I decided to buy today on the strength of it being a Lincoln Indicators star stock (valuation $2.70) and with consensus forecast also showing the price as undervalued and with what looked like a good performance (don't know this company well) and a solid balance sheet. I looked at the chart last night and it looked like it was at a decision point after being dumped so heavily for two days. I don't know what AMP were expecting the results to be.


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## notting (28 May 2015)

*Re: OFX - OzForex Group*

They were floated after Prospectus holders got em for $2 a share.
Hit the wall at $2.59.
Tested the prospectus holders and those that missed out in November 2014, only to be met by solid buying.
PE has consistently toyed above 30 which shows there has been plenty of confidence in it.
Disappointed on those expectations and dividend payment as well as much higher marketing and staffing costs relative to growth achieved thus far in the US.
I guess you should expect those costs to be front loaded when entering new markets.
Growth needs to far out strip relative marketing and staffing costs to affirm the great expectations.
Seem like pretty sound and competent people running the gig who have a lot of respect in the industry.
Too early to call, AMP dumping it is a good sign, given their such a pack of losers.


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## George Washingto (8 July 2015)

*Re: OFX - OzForex Group*

For anyone interested I have put my thoughts on OFX down on paper. Any feedback/discussion would be good.

https://hardworkingcapital.wordpress.com/2015/07/08/ozforex-a-capital-light-money-printing-machine/

As part of my investment process I am trying to force myself to write something down to aid postmortems when things go well/poorly.


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## notting (31 July 2015)

*Re: OFX - OzForex Group*

showing a bit of pluck.


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## Miner (2 August 2015)

*Re: OFX - OzForex Group*



George Washingto said:


> For anyone interested I have put my thoughts on OFX down on paper. Any feedback/discussion would be good.
> 
> https://hardworkingcapital.wordpress.com/2015/07/08/ozforex-a-capital-light-money-printing-machine/
> 
> As part of my investment process I am trying to force myself to write something down to aid postmortems when things go well/poorly.




I liked your blog.
My experience with OFX has been i asked them few questions to allocate my US $ based salary through them instead of Westpac to save at least $500 per monthly. Their reply was however very vague and confusing.

I then saw a SELL Call from a reputed financial newsletter who charges hefty premium for their membership.
So I given up any inclination for OFX to deal with or to invest.


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## McLovin (3 August 2015)

*Re: OFX - OzForex Group*

A couple of questions...

1) Per your blog, OFX's biggest competitive advantage is first mover advantage and the "stickiness" of their customers. OK, I accept that, to a point, but then in your valuation you say...



> I believe that 7% growth in OE is very achievable over a long time frame.




How much will this growth cost? OFX may have sticky customers but to continue to grow they need to acquire new customers. They have zero competitive advantage, and, from what I've seen, the market for FX broking is very crowded.

2) 



> OFX’s Network/Infrastructure: OFX has a combination of assets/networks/infrastructure that would be difficult for someone to replicate.




Hmm...Do they really? What attributes do these assets have that make them difficult to replicate? I see a very small asset base, and let's face it there's nothing novel about buying and selling fx. It doesn't seem difficult at all to replicate, and those margins sure to give competitors a pretty juicy reason to.


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## prawn_86 (3 August 2015)

*Re: OFX - OzForex Group*



McLovin said:


> ..
> 
> 1)...They have zero competitive advantage, and, from what I've seen, the market for FX broking is very crowded.
> 
> ...




1. FX broking is extremely crowded, especially in AUs and the UK. No-one yet has been able to successfully crack the US market and there is no indication that OFX is doing anything different. In fact they are losing ppl on the ground in the US

2. It is all about infrastructure. It is possible to replicate however is very expensive and time consuming to get the regulatory infrastructure and banking partners in place.

Biggest risk to any FX broker is their banks pulling out, as was witnessed with what happened with Westpac and OFX


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## McLovin (3 August 2015)

*Re: OFX - OzForex Group*



prawn_86 said:


> 2. It is all about infrastructure. It is possible to replicate however is very expensive and time consuming to get the regulatory infrastructure and banking partners in place.





How expensive is expensive? Are we talking $1m, $10m, $100m?

Always good to get insights from someone in the industry.


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## McLovin (6 August 2015)

*Re: OFX - OzForex Group*

They talked a pretty big game yesterday, and if it pays off then they'll do well but 12% just for bringing out a plan and a nice new logo?


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## notting (6 August 2015)

*Re: OFX - OzForex Group*

*Impacts of the 
Accelerate Strategy*

Extra $20m costs over 24 months in FY17 and FY18
 ½ Capex  /  ½ Opex
Revenue will grow faster than expenses
Earnings will grow faster than revenue
Double revenue in 3 years
The recent sell off largely revolved around marketing spending versus resulting revenue generated as the attempted to grasp a share of the US, which looked desperate.  
I think the above presentation slide suggested that will be turned around.
I sold half mine today.


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## prawn_86 (7 August 2015)

*Re: OFX - OzForex Group*



McLovin said:


> How expensive is expensive? Are we talking $1m, $10m, $100m?
> 
> Always good to get insights from someone in the industry.




Im not on the operational side so dont have clear figures. But i would estimate to set up a shop, in Australia alone, you would need at least $5m to pay for infrastructure, licensing, margin holdings, staff, drawdowns while ramping up etc and then you wouldnt have a competitive advantage because you would likely need to use corespondent banks (more fees) and not get good credit lines from your banking partners

To set up a truly global operation? No idea, i would say at least 50m


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## George Washingto (8 August 2015)

*Re: OFX - OzForex Group*



McLovin said:


> A couple of questions...
> 
> 1) Per your blog, OFX's biggest competitive advantage is first mover advantage and the "stickiness" of their customers. OK, I accept that, to a point, but then in your valuation you say...
> 
> ...





Thanks for the responses McLovin. I agree, my biggest issue with this investment is the shallow moat. It's no Sydney Airport, but everything comes at a price I guess. Also, it has taken OFX 15 years to get to where it is now. I think Prawn has covered it better but my understanding is it isn't that simple to just put up another website and start offering the same service. To get the scale required to operate profitably I imagine any new entrant would have to run at a loss for a long period of time. 

In regards to paying for growth, OFX already pays ~15% of revenues in marketing/promotion. My rudimentary FCF valuation factors that in going forward. What is really interesting is the operational leverage of this business. Each additional customer would fall straight to the bottom line. The incremental costs of serving additional customers would be pretty close to zero I imagine.

Regarding the AGM, its always nice to get lucky. If only every stock took off 20% after I bought it. Looks less attractive now but happy to hold. I see this delivering a nice stream of increasing dividends for the next 5-10 years.


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## prawn_86 (9 August 2015)

*Re: OFX - OzForex Group*



George Washingto said:


> What is really interesting is the operational leverage of this business. Each additional customer would fall straight to the bottom line. The incremental costs of serving additional customers would be pretty close to zero I imagine.




Really depends on their sales structure and what sort of account. For a private account that signs up online and does small transfers then yes you are correct. However that (generally) isn't where the money is.

For a good corporate level client i would say a 'dealer' can manage no more than 200 clients without efficiency losses. The on the corp side there is more and more competition in Aus (banks are pushing back aggressively).

So yes, if they want to play in the small personal 'transfer' space you are correct, although one has to question the total market size of this especially in Aus. For corporate clients you will need to bring on more people as the corporate book grows in order to manage and defend those clients


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## prawn_86 (19 November 2015)

*Re: OFX - OzForex Group*

Prelim takeover bid by Western Union today. WUBS has a history of screwing up acquisitions from the client perspective, so will be interesting how this goes through in the mid term, but as licensing and compliance gets more difficult and costly you are likely to see 2 things:

1. Further consolidation among non bank players (not that there are a lot out there left). WUBS only tends to 'grow' via acquisition and then blows all the benefits anyway

2. Unregulated blockchain players coming into the market, whether they can get enough corporate and mass market acceptance to go legit depsite licensing (a la Uber) remains to be seen


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## George Washingto (9 February 2016)

*Re: OFX - OzForex Group*



prawn_86 said:


> Prelim takeover bid by Western Union today. WUBS has a history of screwing up acquisitions from the client perspective, so will be interesting how this goes through in the mid term, but as licensing and compliance gets more difficult and costly you are likely to see 2 things:
> 
> 1. Further consolidation among non bank players (not that there are a lot out there left). WUBS only tends to 'grow' via acquisition and then blows all the benefits anyway
> 
> 2. Unregulated blockchain players coming into the market, whether they can get enough corporate and mass market acceptance to go legit depsite licensing (a la Uber) remains to be seen




Well this has been a rollercoaster. Since my original post it has gone from $2 to $3.60 and now all the way back to $1.90.

Putting my very long term hat on, it could turn out to be a blessing a ~$3.60 takeover fell through. Interested to get people's thoughts on WU's motives... strange to do 3 months of DD for no result. Sounds to me like there might be some brinkmanship going on. OFX calling WU's bluff perhaps, or maybe WU calling OFX's bluff!

Still holding..


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## skc (9 February 2016)

*Re: OFX - OzForex Group*



George Washingto said:


> Well this has been a rollercoaster. Since my original post it has gone from $2 to $3.60 and now all the way back to $1.90.
> 
> Putting my very long term hat on, it could turn out to be a blessing a ~$3.60 takeover fell through. Interested to get people's thoughts on WU's motives... strange to do 3 months of DD for no result. Sounds to me like there might be some brinkmanship going on. OFX calling WU's bluff perhaps, or maybe WU calling OFX's bluff!
> 
> Still holding..




OFX coupled a profit downgrade with the end of the talks which would have explained a lot of the falls. It was trading @ $2.60 before the indicative offer... so the current price is just 30% below that price. Considering the profit downgrade and a week market particularly at the high PE end, the current share price feels about right (plus/minus 15%).


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## notting (9 February 2016)

*Re: OFX - OzForex Group*

It's not often a good sign when someone pulls out of an offer after spending money on due diligence after spending on a take over offer.


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## System (2 September 2016)

On September 2nd, 2016, OzForex Group Limited changed its name to OFX Group Limited.


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