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Should I pile into FairFX Group, up 20% today?

FTSE AIM stock FairFX Group (LSE: FFX) shot up as much as 20% this morning on the release of the firm’s half-year trading statement. I already own some of its shares but should I buy some more?

FairFX sees itself as a “leading challenger brand in banking and payments” aiming to “disintermediate” established old-guard banks in its trading area with its “superior user experience and low-cost operating model.”

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We’ve seen the power of those seeking to disrupt established industries in sectors such as supermarkets, retailing and others, so I’m taking the firm’s ambitions seriously.

Business is going well

The company operates as an international payment services provider in the retail and corporate segments of the UK, which it estimates to be a market worth £60bn a year. FairFX’s cloud-based peer-to-peer payments platform enables personal and business customers to make low-cost multicurrency payments in many currencies and using several Foreign Exchange (or Forex/FX) products via one system.

The company’s platform allows payments direct to bank accounts or via 30m merchants and Automatic Transaction Machines (ATMs) in many countries. Customers can use mobile apps, the internet, SMS, wire transfer and Mastercard or Visa debit cards.

Business is going well. In 2017, the firm acquired Q Money and that firm’s e-money license, which FairFX aims to use so that it can diversify and provide digital banking products mainly to Small and Medium Enterprises (SMEs). The selling point is that FairFX can offer “affordable” current account services. At the moment, the firm offers currency cards, international payments for personal and business customers, travel cash, and a corporate card expense platform.

Very good outlook

Today’s half-year trading statement trumpets “continued strong growth with turnover exceeding £1bn.” During the six-month period to 30 June, turnover was up more than 146% year-on-year, in line with the directors’ expectations. Excluding the contribution from recent acquisitions Cardone Banking and City Forex, like-for-like turnover moved almost 23% higher compared to the equivalent period the year before, to almost £533m. The company defines turnover as the gross value of currency transactions sold plus the gross value of deposits into bank accounts.

FairFX has achieved some of its progress in the first half by launching new products. Crucially, chief executive Ian Strafford-Taylor said in the report that profit margins had been maintained during the “substantial” growth in turnover. He said the directors have “great confidence for the prospects for 2018 and beyond.”

Meanwhile, City analysts following the firm expect earnings to shoot up more than 1,200% this year and by 86% in 2019. With the share price at 129p as I write, the forward price-to-earnings ratio sits at just over 14 for 2019. If strong earnings growth continues, I think there’s potential for a valuation re-rating upwards and ongoing share-price progress to track further growth in the years to come. I think the stock looks attractive right now. 

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Kevin Godbold owns shares in FairFX Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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