Why the OFX Group Ltd share price has plunged again today

Shares in international money transfer business OFX Group Ltd (ASX: OFX) have plunged more than 7 per cent this morning after the group announced its chief financial officer, Mark Ledsham, is to leave the business.

OFX has struggled to live up to investor expectations ever since it floated at an initial public offer price of $2 per share in October 2013 to sell for $1.30 today and I have written multiple times before that a high staff turnover is a problem for this company.

The company’s previous chief executive officer lasted just 19 months in the job after being given the push by the board in February 2017 and there’s also been a high turnover of senior staff and directors ever since it floated.

A high staff turnover is a problem for any business and an especially big problem for a young but growing business like OFX Group that is reliant on more experienced staff to execute its customer-facing business model.

Such a high staff turnover over the past four years means the OFX business of today is very different to the entrepreneurial OzForex group of 2012 that was led by its founders and a collection of staff looking to act in the interests of its owners.

High staff turnover is also commonly a symptom of a business where staff are unhappy, which could be for any number of reasons that prevent the business performing to its expectations.

It’s no surprise then that the news of the CFO’s resignation has seen the stock slide today, with it down 35% in total since it floated. Notably, at the time of its initial public offering most of the insiders who had worked together at the business sold down the vast majority of their holdings.

Since then the stock has fallen 35% with very few of the pre-IPO management team left at the company. Given this is a business where the main assets are staff this is a major problem and for that reason I am not a buyer of OFX shares and have warned investors off them consistently since its IPO.

Of course it’s the future that matters though and OFX reportedly has a well regarded new chief executive in Skander Malcolm, who has a big job on his hands trying to build the OFX business into a growth business all over again.

If you’re looking for companies in the fintech space I would prefer one with genuine competitive advantages, sticky clients and consistent revenue growth, such as financial markets data provider Iress Ltd (ASX: IRE). Its shares are up 74% over the past five years and I expect its competitive strengths and market-leading products will produce another strong five years ahead.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

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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