At the beginning of June I wrote about why I believed OzForex Group Ltd (ASX: OFX) was a great long-term buy after a 25% fall in the share price over two days. Since then the share price has continued to fall, and on Friday closed at $2.26, 35% off its all-time high of $3.50.
The share price has fallen due to ongoing concerns that user growth is running below expectations. While this may be the case, I remain optimistic that over the long term OzForex will take more market share from the established players and develop a strongly defendable niche.
Here are a summary of my reasons why the company is still a strong buy:
- The company's trading update last week reported that nearly 14,000 new clients had signed up to the service in the three months to June, taking the number of active clients to 124,500. The number of active clients has increased by 32% in a year.
- The number of transactions increased by 17% over the year, while turnover increased by 9%.
- Operating income, earnings before interest and tax, and net profit have all increased by 9% to 15% from a year earlier.
- OzForex's share price is now within touching distance of its $2 IPO price. The IPO was oversubscribed and jumped 30% in the first day on its way to hitting a high of $3.50 just seven months after listing. Now, here's the important part: All those investors that pushed the share price up early were relying on the prospectus forecasts, some of which are now proving to be an underestimate.
- Turnover, net operating income, earnings and net profit are running between 2% and 6% above the prospectus forecast. This is countered by new clients being 20% below prospectus and total active clients down 5%.
- More importantly however, average transaction value is 17% above estimates which has more than taken up the slack of lower customer numbers.
- Finally, OzForex has established a partnership with accounting software business Saasu, which will hopefully lead to deals with others. Imagine if OzForex connected with XERO FPO NZ (ASX: XRO)!
