The OFX Group Ltd (ASX: OFX) share price opened 10% higher at $1.45 this morning after the international money transfer business posted marginally better-than-expected results for its full financial-year ended March 31, 2017.
Below is a summary of the results, with comparisons to the prior year.
- Underlying net profit of $19.6 million, down 18%
- Underlying EBITDA (operating income) of $27.8 million, down 23%
- Total turnover of $19.4 billion, down 1%
- Fee and trading income of $114.1 million, up 3%
- Total transactions of 852,300, up 9%
- Final dividend of 2.9 cents per share fully franked
The past 18 months or so have been a rough ride for the group with no less than three profit downgrades, a new CEO, failed takeover offer, high staff turnover, rising competition, costs, and a major name change (rebranding) that didn't deliver as expected.
All of the above problems and in particular the high staff turnover mean that OFX Group is now a very different business to the one that was sold to the public during its IPO in late 2013.
This is a bigger problem than many institutional investors realised as the OFX business model is client facing and sales driven, with profit maximisation partly reliant on a commission sharing staff remuneration structure disclosed in its Financial Services Guide.
While OFX had a tough time under its now former CEO, the question for investors now is whether the new CEO can deliver on his stated priority of stronger "execution, discipline and growth across the business driving positive jaws".
The new CEO is reported to have an excellent reputation, but in transforming the OFX business has a big job on his hands given the recent history of poor execution and rising costs.
More investment in technology and digital marketing has been flagged over FY 2018, which is probably the right strategy given the rising competition and whether the business can deliver sustainable growth from here is up for debate.
The fintech space is fast moving with startups like peer-to-peer money transfer service, TransferWise now disrupting the disruptors in OFX, who originally took market share from the big banks like Commonwealth Bank of Australia (ASX: CBA).
That's why I'm watching OFX Group's progress from the sidelines and in the fintech space would prefer fast-growing market leaders at the cutting edge in delivering innovative new products across large global markets.
One company that ticks the boxes is cloud accounting innovator XERO FPO NZX (ASX: XRO), which still has commercial agreements with OFX in just one small example of how it is building out a network effect that may deliver a small moat and profit growth long into the future.
