Ozforex share price set to plunge

The Ozforex Group Ltd (ASX: OFX) share price looks set to fall when it begins trading today after the company made not one but two negative announcements.

The money exchanger says it has terminated takeover discussions with Western Union, because the latter has yet to submit a binding proposal for Ozforex, despite months of negotiations. Western Union had offered between $3.50 and $3.70 cash per Ozforex share in November 2015, but the offer was non-binding, indicative and conditional.

At the time, Ozforex’s share price was $2.61, so the offer was substantially higher than the last trading price. Both Western Union and Ozforex have created a niche for themselves undercutting the major currency exchangers (the banks) by offering much cheaper fees and better exchange rates for customers who want to buy or sell currency or transfer funds offshore.

As well as announcing the termination of the deal, Ozforex also cut its forecast earnings for the 2016 financial year (FY16). In November 2015, CEO Richard Kimber announced, “Ozforex is pleased to re-affirm its FY16 guidance provided at the time of the AGM in August 2015 of $38.5 – $40.5 million underlying EBITDA (earnings before interest, tax, depreciation and amortisation), subject to market conditions.

Now the company is forecasting underlying EBITDA for FY16 of $35.0 – $37.0 million, which it says ‘represents growth versus the prior corresponding FY15 period, but is lower than previous guidance provided’.

Ozforex blamed its reduced advertising expenditure associated with the Ozforex brand ahead of its rebranding to OFX and a new website. Decreased volatility in the foreign exchange (FX) markets also cut the trading activity from both new and existing clients compared to expectations.

Foolish takeaway

Investors gambling on the takeover proceeding now face the prospect of seeing the Ozforex share price plunge – although it’s possible Western Union may still make a binding bid at a later stage. The share price closed at $3.09 on Friday.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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