OFX Group Limited - Firms up Its Global FX Services Footprint

Equity Bottom-Up

526 Views09 Sep 2022 08:00

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SUMMARY

OFX Group Limited

Firms up its global FX services footprint

OFX Group Limited (ASX:OFX) is an Australian-based international money transfer and foreign exchange (FX) services provider servicing consumer and business clients globally via its digital platform. In FY22, OFX facilitated 1.18m transactions across 55 currencies worth A$33.2b. On 1 May 2022, OFX largely completed the A$98m debt- funded acquisition of Firma, a Canadian-based global FX business. Notably, Firma represents OFX’s first major acquisition, is aligned to its strategic focus on the corporate customer and North American geographic segments, and is expected to be 20% EPS accretive in year one. Following record results in FY22 ($147m net operating income (‘NOI’), $44.5m underlying EBITDA, 30.3% EBITDA margin, operating cashflows of $47.6m, free cashflows of $36.1m and $24.5m NPAT), OFX recently disclosed Q1 (June qtr) FY23 financial metrics including 45% total NOI growth (including Firma) and 13% organic NOI growth (excluding Firma) on the pcp, and re- affirmed its FY23 guidance for NOI of $200m-$212m and underlying EBITDA of $55m- $60m. Given the value of the global FX payments services market is ~US$206b and OFX’s market share is <0.05% (with banks/incumbents accounting for ~72%), there is potential for it to capture increased market share.

Business model

OFX provides competitively priced international money transfers in 55 currencies through its digital platform (complemented by localised 24/7 client support) and global banking partner network. It generates revenue from fee and trading income primarily comprising realised FX transaction margins (i.e. the difference between the FX rate it obtains from its wholesale foreign exchange market providers and the FX rate it charges to customers) and fees. OFX is focused on four customer segments: (1) High-value consumers; (2) Corporates (typically monthly trading); (3) Online sellers (e.g. via Amazon); and (4) Enterprises (large companies requiring cross-border payments for their customers: e.g. WiseTech). OFX’s FY22 revenue was slightly skewed to B2B/corporate (~52%), predominantly from recurring customers (77% of revenue), and geographically split between APAC (55%), North America (29%) and EMEA (16%). Its key strategic growth priorities currently lie in the corporate, on- line seller and enterprise customer segments and North American geographic segment.

45% NOI growth in June quarter

At its recent 11 August AGM, OFX disclosed the following key Q1 (June qtr) FY23 financial information: (1) NOI of $47.9m (up 45% on the pcp) with Firma contributing $10.5m; (2) 13% organic NOI growth on the pcp (i.e. excluding Firma); (3) Corporate segment yoy growth of 83% (including Firma) or 20% (excluding Firma/organic); and (4) $14m debt repayment facilitated by positive free cashflows. OFX also confirmed its FY23 guidance (originally provided on 17 May) for NOI of $200m-$212m and underlying EBITDA of $55m-$60m, and reiterated that it intends to repay the A$100m Firma-acquisition debt in under four years (assuming no further material cash-based investments/acquisitions). In Q1, OFX also completed a new reconciliation engine to enable instant processing of incoming payments.

Trading at a discount to Wise and premiums to MGI and WU

OFX is trading at 11x forward (FY23f) EV/EBITDA and 22x FY23f PER (Source: Refinitiv). Whilst there are no ASX-listed pureplay FX services peers, five of OFX’s larger competitors are listed on overseas exchanges, namely Wise plc (formerly ‘TransferWise’) which listed on LSE in July 2021, NASDAQ-listed MoneyGram (MGI), Flywire (FLYW) and Payoneer (PAYO), and NYSE- listed Western Union (WU). OFX currently trades at a significant discount to Wise’s ~29x forward EV/EBITDA and ~54x forward PER, and the forward EV/EBITDA of FLYW and PAYO (~89x and ~36x respectively). Relative to MGI and WU, OFX is trading at a premium on forward EV/EBITDA (vs. ~8x for MGI and ~7x for WU), in-line with MGI on forward PER (~22x), and at a premium to TU’s ~8x forward PER (Source: Refinitiv).

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