Newly listed online currency trading company OzForex (ASX: OFX) has avoided the mistakes of its peers, beating prospectus forecast and showing good growth.
The floats of Myer (ASX: MYR), Collins Foods (ASX: CKF), and iSelect (ASX: ISU) in recent years have decimated shareholder returns by issuing downgrades in the first six months after listing. Conversely, OzForex beat its own prospectus forecast by 7% to hit a company record profit of $9.4 million for the first six months of 2013, up 14% from 2012.
The result pushed OzForex's share price back to $2.70 after surging from $2 to $2.88 in the week after listing in October and then drifting back to $2.39 earlier in November. Chief Executive Neil Helm was happy with how the company was being run, saying that they had "historically run the company like a publicly listed company in terms of the governance that it followed. From our perspective there is not a significant change except that we have further interaction with investors, the media and analysts now that we're listed."
During the presentation the company announced a jump in active clients of 29% from 82,000 to 107,000. This pushed the net fee and commission income up 44% to over $34 million as the average transaction size increases 22% from $18,900 to $23,100.
OzForex is showing good growth prospects in 2013-14 as it expands into Asia, Europe and the US. In the first half, Australian and US transactions accounted for 53% and 11% of commission income respectively and the company has successfully received licences to trade in 32 US states, up from around 12 a year ago. It is expected that deals with the remaining 15 or 16 states will be complete within 12 months, hopefully increasing the proportion of revenue from the states.
The full-year forecast of $18.6 million was reiterated, equating to earnings per share of 7.8 cents and price to earnings of 34 based on the current share price. This compares with around 45 for recently listed Freelancer.com (ASX: FLN) and 20 for the well-established Flight Centre (ASX: FLT).
Foolish takeaway
Investors willing to stomach some risk should consider investing in OzForex over the long term. The company is currently a tiny player in a huge industry currently dominated by the big banks making huge margins. Anecdotal evidence has pointed to OzForex delivering the same service as the current industry players at a much reduced rate, exactly the disruptive force required for OzForex to grow quickly. Risk remains that as the company becomes a larger player, the big banks holding the pricing power in the industry could lower margins to halt OzForex's growth.
