A 24% lift in revenues and a whopping 52% lift in net profit wasn't enough to appease shareholders of money transfer business Ozforex Group Ltd (ASX: OFX) earlier in the week, who responded by selling the shares down by as much as 18.4% from their closing price on Monday.
The stock hit a low of $2.17 during yesterday's session, but has since managed to regain 16 cents to trade at $2.33. It's up 3.6% for the day.
As was reflected in its revenue and earnings growth, it was a solid 12 months for OzForex. During the year, it helped 142,000 clients transfer $16 billion worth of money (a 22% improvement on 2014) from one currency to another, while it also recorded 21% more transactions, which were slightly higher than 702,000.
However, it seems that the market was more fixated on a reported 26% rise in operating expenses during the year, which came mostly as a result of higher employee and marketing costs (up 20% and 31% respectively). Meanwhile, it also withheld details on the cost to acquire new clients (which it had previously made available), which may have spooked investors.
Should you buy OzForex?
As is clear from the numbers mentioned above, OzForex is a growing business and higher operating expenses are often necessary to help drive some of that growth. However, while the company is capable of generating significant shareholder returns (especially from its now discounted price), it is by no means a risk-free prospect.
Westpac Banking Corp (ASX: WBC) made the decision earlier this year to exit the money service industry altogether, severing ties with OzForex. Although OzForex still has other banking partners to work with, there is a risk that others could follow a similar path to that chosen by Westpac, which could have a severe impact on the business moving forward.
Shortly after that development was made public, investors also had to deal with the sudden departure of CEO Neil Helm, who has recently been replaced by Richard Kimber. Although it is too early to determine how well Kimber can lead the business, a management shake-up should prompt investors for a pause for thought.
