SLAMMED: Why shares of OFX Group Ltd crashed 15% today

Credit: Nicki Manix

Shares of OFX Group Ltd (ASX: OFX) have been slammed today after the group, formerly known as OzForex Group, released its earnings results for the six months ended 30 September 2016.

The shares fell to a new low of just $1.34 shortly after the market opened today, compared to a high of $3.55 just under 12 months ago. Although they have rebounded marginally to $1.375, they have still fallen a little over 62% since that high and more than 15% today alone.

In its earnings release today, OFX Group (an international money transfer business) reported a 4% decline in its half-year turnover to $9.6 billion, while its underlying EBITDA and NPAT results were down 25% and 21% on the prior corresponding period, respectively.

Notably, EBITDA measures earnings before charges such as interest, taxes, depreciation and amortisation are accounted for, while NPAT represents net profit after tax.

Meanwhile, OFX Group reported a slight improvement in its number of active clients compared to the six months immediately prior (that is the six months ended 31 March), while the number of transactions it processed also grew. For the period it had roughly 151,700 clients and 419,300 transactions, compared to 150,900 and 392,000 in the second-half of financial year 2016, respectively.

The average value of those transactions, however, fell to $22,800 from $24,400, although this was mostly offset by an increase in the number of transactions per client. You can see my calculations in the final two lines of the chart below:

Source: OFX Group, author calculations

Source: OFX Group, author calculations

The Future

In response to today’s results, OFX Group’s CEO Richard Kimber said:

“OFX’s underlying operating metrics continue to be driven by a very high quality portfolio of active clients across both personal and corporate accounts. We have seen a return to modest revenue growth despite unfavourable market conditions post Brexit, with an increase in transaction volumes from both existing and new clients. Net operating income was up by a similar amount from the second half of FY16.”

OFX Group said it would continue to acquire quality clients and would maintain the momentum in transactional growth, although investors will be interested to see whether this results in a further decline in the average value of transactions. The company also expects future growth in expenses to be at a lower rate, given that its step change investment in marketing and technology is now embedded within the cost base.

Indeed, the company is making improvements across its business but it is not immune to competition, while the sluggish growth in client numbers is also disappointing. Although OFX Group doesn’t look overly expensive at today’s price, the shares could experience further falls if growth in client numbers doesn’t improve.

As always, investors should do their own due diligence into the business before even considering a purchase. I’d be inclined to remain on the sidelines for now.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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