Current Price: $10.55
Target Price: $22.00+
Upside: 100%+
Expiration Date: TBD
This idea was shared by a member who asked to be called Aladdin.
This is an interesting case with a ‘hidden’ high growth segment and several potential catalysts, some of them near-term. Downside is protected by cash on the balance sheet.
Currency Exchange International provides foreign currency exchange and payment services in US and Canada. It has two business segments – physical Banknotes and cloud-based software Payments businesses. The physical banknotes business at the very least is worth the current net cash on the balance sheet ($46m vs $67m market cap), which leaves the fast-growing software business at a minimal/zero valuation. The Payments segment is currently doing $8.4m in run-rate revenues, is growing at over 100% and has near-term catalysts to continue expanding at a fast pace. On top of that, the Banknotes business is expected to recover above pre-covid levels ($6m of EBITDA in 2019) with the return of international travel and will like be worth much more than the net cash balance. The company has started a number of initiatives, which, if successful, could easily turn CURN into a multi-bagger. The company has stopped burning cash recently, and the downside seems to be very well protected by the cash position. Management owns 28%, the majority of which is held by founder/CEO – incentives seem to be well aligned here.
The situation likely exists due to nano-cap size, OTC listing (the company is also listed in Canada), very low liquidity ($50-$100k daily volume), limited business transparency in the filings, some exposure to travel recovery thesis and the main growth segment still being fairly small (24% revenues) with the explosive growth showing up just in the recent quarters.
Historical business performance
The company has two product lines / business segments – legacy physical banknotes and the new/fast-growing payments business. Most operations go through CURN’s Canadian subsidiary Exchange Bank of Canada, which is licensed as a non-deposit-taking bank engaged in currency exchange services. 80% of the revenues are in US, 20% in Canada. 76% is Banknotes vs 24% Payments. Below you can see the historical performance of each product line. CURN doesn’t provide more detailed split on anything other than the topline making the profitability of each product-line individually obscure. Fiscal year ends in October (two months earlier).
Banknotes
Banknotes include trading physical currency for retail and wholesale customers. Revenues in this segment are mostly generated from currency exchange spreads.
Retail involves 35 exchange kiosks in high traffic tourist destinations, recently launched Online FX, and post-COVID opened agent locations in airports on franchise/royalty basis. Pre-COVID the company had 46 branches, however, the company closed 12 least profitable and then opened one additional in Nov’20. CURN also has 6 vaults (one temporarily closed) and 720 consignment locations where the currency is placed/held on a consignment basis.
Wholesale part services various financial companies and credit unions/banks. Wholesale clients are mostly banking and similar institutions and these come in two types – (1) ones that already have their own currency inventory and vault facilities (e.g. larger banks) and are buying currency in large volumes and at lower margins and (2) the others that are mostly small/medium size banks and financial companies which outsource currency needs (for various regulatory nuances) and buy/sell currencies directly from CURN – these clients buy at lower volumes but provide higher margins. CURN competitive advantage comes from not being a direct competitor to other banks, so many smaller/mid-sized banks tend to choose CURN instead of partnering with the likes of Bank of America.
The business is seasonal and driven mainly by tourism traffic. It was hit hard by the pandemic. Pre-COVID the company (was mostly Banknotes business at the time) was generating $7m-$6m EBITDA. Given the changes implemented since then and further management initiatives, the profitability of Banknotes segment is likely to return to previous levels once international travel recovers (2022? 2023?). At the very least this business should be worth the $46m liquidation value – $57m in cash, out of which c. $15m is excess cash, less the $11m of debt.
Nonetheless, there are several interesting aspects here, which indicate that when the international travel numbers recover, the company is set not only to return to pre-COVID levels but very possibly go above the historical figures.
- Despite gradually declining cash/banknotes use, the company is set up strong and has been steadily growing its market share pre-COVID. The pandemic has improved competitive positioning further as one large competitor (TraveleX) has exited the North American market in April’20 due to their liquidity issues. CURN believes that the banknote market is still attractive and will recover once the travel comes back:
Despite the shift toward electronic payment options, there is a large global wholesale banknote market. Many traditional wholesale banknote providers either are not investing in, or are exiting, the business at a time when banks around the world are outsourcing the management of foreign banknotes.
[…]
It is expected that wholesale banknote revenue will recover slowly until the risk of transmission from the coronavirus is reduced to an acceptably low level to enable the resumption of international travel.
- Travelex generated about $100m revenues in NA pre-COVID. Most of its clients were Credit Unions (wholesale) and airports (retail). After the exit, CURN was able to pick up many of its wholesale clients/Credit Unions and has also recently started targeting airport locations through a different franchise/agent structure. The company is already open exclusively in JFK, Chicago O’Hare, and Chicago Midway. Airports are important as they should be the first to recover with the return of tourism and the revenue is very high margin (royalty based). With all of this, the company has already expanded its wholesale relationships number +22% vs pre-COVID. This indicates a materially larger business base and suggests improved revenues once international normalizes. Below are a few quotes from April’21 conference call – I have transcribed them myself, so might not be fully accurate.
CEO: Despite the COVID we continue to add a lot of customers. Partly this has been fueled by our larger competitor, a company based overseas that has fell down during the pandemic. They have recapitalized their business, but the caveat with the finance was they exited the America (US, Canada and Carribean). That has helped fuel additional customer growth, which is gonna be very good once the world finally reopen.
Analyst: How much bigger did the footprint get TraveleX and you know Duty Free in the South etc. Just to understand what the business could be if there’s a recovery.
CFO: Yeah, so we estimate that base amount of business from where it was to say a year ago to now with all of the additions. Is roughly 15%-20% higher.
Analyst: So lets pretend that its gonna take a while to get back to normal and even if there’s reluctancy in people to use currencies the base is that much bigger, I mean, you have so much more transacting locations that you should be able to get back in time to where you were. Is that a fair guess?
CFO: Yes
- CURN intends to expand the banknotes business globally stating that after several international competitors have left/scaled down (HSBC, Bank of Ireland, TraveleX), there is a need for a global player. The major catalyst for that has recently come to life – the company received approval from the Federal Reserve Bank of New York to open an account. This has virtually eliminated the company’s sourcing costs as previously it had to source currency from wholesale banks paying 0.01% fee on the volume (around $1m annually), get it into their own vaults, process them, and send them. Now CURN will be able to get currency straight from the central banks with same-day delivery. This should immediately result in $0.5m-$1m annual cost savings (as per Q3’21 call). Also such Fed approval resulted in increased credibility and the ability to source mint dollars for which there is a large global demand. The company intends to attract new international clients with bigger volumes – apparently, two large international financial organizations have already been signed up after the Fed approval.
From Apr’21 call, CFO:
With any central bank the opportunity is to expand into international market. There’s large demand for USD mint notes. The main provider is Bank of America. There is demand and we’re already seeing it primarily from banks that want to diversify from just one major supplier and on top of that we can sell CAD mint, CAD notes and there’s demand for that as well. And in South America, Latin America there’s plenty of opportunity. So the advantage of a relationship like that, with a central bank, is that you can get the volumes you need in mint, especially in mint, that is particularly important and it an easy and more flexible depository so we can handle much larger volumes than on our own because we can ship directly there and deposit the notes there without having to bring the notes into our vaults, process them and send them.From Q3’21 call, CEO:
Our account is now open and we are beginning to utilize this. Not only does it bring in new revenues for our banknotes it also brings in the ability to lower our sourcing costs. This was one of the original reasons why we went out to create the bank, so that we can deal with central banks and reduce our sourcing costs. The value to our current flows of USD is quite significant. When the board of directors looked at the business and knowing that we have been approved by the Federal Reserve and knowing that our Payments business continues to have opportunity for significant growth, the board made a decision to inject capital into the bank, both in the form of equity investment and in form of convertible debenture. Now Exchange Bank of Canda is well capitalized.
- In Q4’19, CURN made a $4.2m acquisition of eZforex.com – a U.S. wholesale business based in Texas, which provided services for 236 financial institutions. In the first 2 months before covid hit eZforex.com generated $255k revenue and around $150k net income ex. transaction expenses to CURN, indicating incremental annual revenues of around $1.5m and $0.9m of annual net income. It is fair to say that any potential benefits of eZforex are not yet reflected in CURN performance, but probably will be, once travel recovers.
- As can be seen in the historical graph above, the company implemented significant cost-saving efforts once the COVID hit – operating expenses were reduced by about $2m-$3m per quarter. Although it might visually appear that the expenses are again back to pre-covid levels, the majority of the increase is actually attributed to the growth of the Payments product-line and hiring of the more expensive personnel for this segment (most of the jobs in banknotes segment are low paid). I expect that once the business recovers, some of the cost-cutting benefits will remain. In the recent Q3’21 MD&A the company has actually stated that although banknote revenues are still significantly lower than pre-COVID, operating leverage now is actually higher.
In that last period prior to the beginning of the COVID-19 pandemic, the operating leverage was slightly lower yet on revenue approximately 14% higher. This demonstrates the benefit of the restructuring actions taken in the year ended October 31, 2020 coupled with judicious cost management.
Valuing Banknotes business at net cash is likely overly conservative – if the recovery plays out well and the significant cash-generating potential is unlocked, the business will be worth much more than that. Cost savings, including sourcing, alone could potentially add $4m in incremental annual EBITDA straight away for $10m annual run-rate. With this the value of Banknotes business alone could easily exceed current market cap.
All of this suggests that so far the market is attaching hardly any value to the Payments software business that has been growing at 100%+ and already makes up 24% of revenues.
Payments
The Payments business is relatively fresh for the company. It is based on a proprietary, CURN-made software called CEIFX that allows clients to process international payments, foreign banknotes, and foreign checks on the same platform. Importantly, the software also provides the tools for clients to maintain compliance with U.S. and Canadian regulations on foreign exchange transactions. CEO has also stressed that a “secret sauce” of their software is that it aggregates data (all transactions) live, whereas most other competitors do it overnight – this reduces the risk of waking up next morning and figuring out that some kind of regulatory filing requirement or transaction limits were breached yesterday. Most clients are small/medium size banks and international SMEs (importers/exporters).
Payments business is not exposed to seasonality or travel recovery and revenues seem to be generated on a transaction fee basis.
As can be seen in the historical financials above, Payments segment revenues were rather flat till the end of 2020. Recent growth was driven by several factors. The major catalyst was CEIFX integration into Fiserv WireXchange platform (now Fedwire) in July’19. Fiserv is the largest core banking software provider in the US with a 37% market share. Nonetheless, the results of this integration were hardly visible due to the pandemic outbreak and very limited CURN sales team at the time. July’20 CURN acquired Canadian payments peer Denarius for $3m expanding the sales team and also adding 450 new corporate customers in Canada. After that, the company went on a national hiring spree and further increased its sales team (the exact details are not provided). In the following quarters, all of the above factors combined with the subsiding COVID fears have resulted in an explosive Payments segment revenue growth of more than 100% to $2.1m in the latest quarter. Althought reaping the fruits of the Fiserv integration has just begun, the company has already started integration of the second-largest core software provider – Jack Henry (16.4% market share). The integration will be completed in November’21 and CURN expects it to be even more profitable than Fiserv. Apr’21 call:
This allows them to have one provider, CXI, utilizing one platform, their core software where all their account holders have their money… They get all the bells and whistles of our software because of our integration. And again this has been proven already with Fiserv and the nice thing with Jack Henry we are gonna be the first provider because they’ve always just done this through the dollars, through Federal Reserve integration, and not allowed their clients to have international relationships. So this gonna be, we think, even more, profitable than the Fiserv relationship.
Apparently, some banks actually prefer CEIFX over wholesale banks (for the above-stated reasons) and intend to switch to CURN once Jack Henry integration is over (Q3’21 call):
We have begun integration with Jack Henry, it’s nearing completion, we will be adding an opportunity to service over 1100 banks, some of which are already customers of ours and have committed to the fact that if we are integrated to their core that they would also switch their processing from their current big bank to CXI.
The CEO also mentioned that right after Jack Henry integration gets finalized, they have another major platform integration pending.
Payments software is already generating $8.4m in run-rate revenues. Clients are apparently quite sticky once the integration is done. Given new platform integrations and the expanded sales team current growth is likely to continue for foreseeable future. While segment profitability is not disclosed, this is a high operating leverage software business that is expected to generate significant operating margins at scale. If current growth continues for the next 2-3 years, Payments segment alone could achieve $5m-$10m in operating income. Investors today are paying zero for this quite visible optionality.
Risks
- COVID stays with us for several more years and travel recovery takes much longer than expected. It’s hard to comment much about this other than that majority of US population has already been vaccinated and we should be nearing the collective immunity. People are really tired of the restrictions and I think the government will have no choice but to ease them down.
- The overall transparency of the business is quite limited and many important questions are left unanswered, e.g. EBITDA segmentation, how many Fiserv clients are already on the book, more details of the Payments business, etc. However, this is also what creates the opportunity today – if full information was disclosed in black and white, share price would likely be much higher. Rather than that, various above-listed aspects seem to be sufficient to indicate high probability of material upside.
- CFO left at the beginning of September’21. This seems strange given that the company has just started recovering. On the other hand, he owned a negligible amount of stock and he might simply have decided to retire (age 65+).
This is a very interesting recovery play. But most of cash is working capital though, so you only have the cash if you liquidate the Currency business.
As for future growth potential for payments, in Q2 call it was indicated they have capacity to on board 20-30 clients per month. And there are 5k banks in the US. So this means there is probably quite a bit of growth run way left? Although revenue is volume based, so it is hard to say.
Regarding cash balance – my understanding is that even though 2/3rds of cash is required as working capital for banknotes business, the book value of the business (which is mostly cash less working capital liabilities) still serves as a good indication of minimum value for this segment. Management could liquidate /shut down this business and probably recover something like 90-95% of the cash (leaving some for admin expenses, severance pay and etc). The downside seems to be well protected at current share price levels if there no further cash burn.
I really like this idea, so much so that I fear becoming irrational about it. If anyone doesn’t like the idea, I would like to hear you explain why.
Bank consolidation leads to fewer customers. Blockchain makes business obsolete. Depends on when electronic currencies will be issued by central banks. SME costumers will not need a bank anymore.
I think bank consolidation is the best bear argument:
https://banks.data.fdic.gov/explore/historical?displayFields=STNAME%2CTOTAL%2CBRANCHES%2CNew_Char&selectedEndDate=2020&selectedReport=CBS&selectedStartDate=1934&selectedStates=0&sortField=YEAR&sortOrder=desc
So far Blockchain is mostly hype and hot air, and current forex tech works fairly well/is quite cheap.
Main issues I see with Blockchain is high costs and if you lose your password/recovery phrase you are screwed. If you get hacked, you are screwed. So no central authority is a bug and not a feature in that case. So why would any individual or institution take that risk if current solutions work fairly well?
Main issue with central bank currencies is privacy. Government can see all your transactions. I don’t think that will happen in the US.
After all if you got a solution right now that is reasonably fast and cheap, why bother with all of the above? The new thing would have to either be superior in every way (which it is not) or it would need to have advantages that are much greater than the downsides (which is not really the case either).
Perhaps a rebuttal to the bank consolidation point would be that the sales volume wouldn’t necessarily be affected. Demand doesn’t halve when two equal-sized banks merge.
Any thoughts appreciated.
What is the latest with this idea please?
October 31, 2021 financials out.
This comes a bit late as fiscal Q4 financials have been published a month ago. I think CURN thesis is still intact and the stock is well-positioned for the rebound/surge in travel during 2022 with a very well-protected downside – all market cap is now in net cash.
The key takeaway from Q4 results are:
– Revenues in both segments continue to grow in line with previous quarters – the Banknote segment accounted for $7.9 million of the revenue, an increase of 104% over the prior year. The Payments segment represented $2.1 million of the revenue, an increase of 93% over the prior year.
– Company had book value of $58m (most of it cash) at the end of the quarter (Oct’21). This compares to the current market cap $65m – downside seems to be very well protected.
– The Company recognized $3.5 million in government grant assistance during the quarter (covid related employee retention schemes) – without this assistance the operating business would have reported a loss instead of $1.6m of net income.
Aladdin – please share if you have any incremental thoughts on this.
Artko Capital outlines investment thesis in CURN.
Expectations for the company to generate $15-$20m in Free Cashflow within the next 24 to 36 months. At 15x Free Cash Flow, Artko expects it to be a $50 stock (vs $10 currently).
https://www.hvst.com/page/art-capital-lp/posts/artko-capital-2021-annual-partner-letter-wBqTRnab
3/16 earnings seems like a catalyst
CURN reported great quarterly (ending Jan’22) results. Clearly shows that the business is geared to travel sector recovery.
– 25% sequential revenue growth – eventhough this quarter was supposed to be seasonally low.
– Banknotes segment delivered $10.3m in revenues – almost in line with pre-covid highs.
– Payments segment is also continuing to grow with revenues of $2.2m.
– Most importantly the company reported net income of $1.5m (without any government grants) and generated operating cash before working capital adjustments of c. $2.5m. Operating leverage of this business is becoming evident with further revenue growth. Capex is minimal.
I think the true earnings power of the transformed CURN business will become visible towards the end of 2022 when after the financials for the seasonally higher quarters are reported.
https://www.ceifx.com/news/currency-exchange-international-announces-financial-results-for-the-three-month-period-ended-january-31,-2022
CURN reported as new position in Greystone Capital Q1’22 letter. Full thesis provided in the letter:
“In the case of Currency Exchange, I’m convinced that both the company and management are punching above their weight by quietly attacking a number of profitable initiatives while operating in a forward-thinking manner set to capture several highly attractive opportunities. I’m partial to management teams that ‘play bigger than they are’ and I believe we’ve found one such group…”
https://www.greystonevalue.com/wp-content/uploads/2022/04/Greystone-Capital-Q1-2022-Letter.pdf
Q2 is out and a bit of a mixed bag; banknotes was flat, which is suprising given the surge in travel and typical seasonality.
Payments has ramped considerably, following a couple of quarters of slower growth, which is encouraging.
Margins actually declined a bit despite the mix shift toward payments, but they generated $3.7m in cash.
Anyone have thoughts on this? Could be a transitional quarter as they have a number of new initiatives in process (international banknotes, agencies, etc.) that are complicating the financials. Was hoping for a bigger ramp on banknotes, though.
They may be less directly tied to travel on a QoQ basis than I originally thought. International volumes are now above 2019 levels, which should help Q3 numbers, but who knows.
I think travel will kick only in summer, which is fiscal Q3 and Q4 for CURN. Q2 is for the end of Apr, which tends to be a slower quarter for travel and for CURN historically (check out quarterly reports in pre-covid years – seasonality is very clear).
After a deeper look I think Q2 results were actually great. I do not think much can be said about quarterly fluctuations in op income margins while the business is still growing, still needs to normalize post-covid, and is affected by inflationary cost pressures. I continue to think margins will benefit from increased scale/revenues.
– Payments segment continues to grow at impressive rates of +127% YoY and +45% sequentially, with expanded client relationship base in U.S. and Canada
– Banknotes was flat sequentially with growth expected to be more visible in the coming quarters.
– Despite 10% QoQ spike in operating expenses (mostly salaries and shipping/postage) CURN still managed to generate $1.3m of net income (vs $1.5m last quarter).
– I also arrive at $2m of cash generated from operating activities before working capital adjustments.
These quarterly figures compare to $90m market cap with $86m in net cash (albeit probably all of it is required for operations of the Banknotes segment).
Below is management comments from MD&A on Banknotes segment:
“However, relative to the three-month period ended January 31, 2022, net banknote revenue remained fairly flat. There were several reasons for this. Firstly, the impact of the Omicron variant impacted consumer demand early in the quarter, especially in Canada. As travel restrictions eased, demand recovered late in the quarter following the Canadian Government’s decision to remove the requirement for a COVID-19 test on re-entry, effective April 1st. There was significant volatility in the currency markets during the quarter, driving the US dollar to a 20-year high against some currencies. This negatively impacted the Company’s currency revaluation and hedging costs, especially for the Mexican Peso, which continued to see strong demand throughout the quarter, necessitating higher inventory levels. The direct-to-consumer division generated revenue growth of 14% over the three-month period ended January 31, 2022 as the Company’s branches, Online FX platform and agent locations all continued to see an increase in transaction volume. “
Yeah they never did more than ~$1m EBIT in Q2, now EBIT is $2.1m. Not even in a full recovery yet. And 47% QoQ growth in payments. I don’t see how the market was dissapointed here, added some today.
Earnings are dropping on Tuesday. Since last quarter, international volumes have increased by ~45% QoQ (mix of seasonality and continued recovery).
Anyone have thoughts on banknotes ramp this quarter?
Historically (pre-covid), Q3 sequential increases have outpaced international travel volumes; if this trend holds, that would imply a ramp of 50%+ QoQ for banknotes. The business has changed since then in a number of ways (more non-travel banknotes volume on one hand, but also adding airport kiosks and DTC business on the other).
Third Quarter results today september 13 and earnings conference call tomorrow 14 – 8:30 AM EST
https://finance.yahoo.com/news/currency-exchange-international-report-third-113000480.html
Killer quarter from CURN. The thesis is working as expected with the company reporting record-breaking financial performance. For some reason, however, the price is up only 10% on the news, which I think is quite underwhelming. Yes, this was supposed to be seasonally strong, but it was even better than management expected. CURN now trades at $95m market cap while generating $7.4m of EBITDA this quarter alone (again, business is seasonal, so multiplying this quarter by 4x would not be correct). Also for downside protection $84m of net cash sits balance sheet, albeit this is not excess cash but rather part of working capital. All in all, I think there is plenty of upside left in CURN shares.
The pitch is now much more known compared to a year ago when we published it on SSI, however, it seems that the previous overhangs of nano-cap size, OTC-listing and limited liquidity are continuing to limit the market’s appreciation for CURN. Nonetheless, substantial upside remains to be realised here and if the company just continues a similarly positive financial performance uptrend, the market is bound to rerate the stock higher.
– The demand for foreign currencies has returned with easing travel restrictions. The business continues to increase market share and acquire new wholesale clients, while increasing penetration in the global banknote trade. All of this resulted in explosive banknotes segment revenue growth – $17m, more than 2x compared to last year and +70% sequentially.
– Payments continues a stable growth acquiring new client relationships in US and Canada. The company processed 26.4k transaction in Q3 – 50% more than last year, although sequentially the amount dropped from 34k in Q2’22. Q3 payment revenue grew 65% YoY and 14% QoQ to $3.6m.
– Total revenue is now 67% higher than pre-COVID peak in Q3’19.
– Despite a 27% sequential increase in operating costs mainly due to increased volumes and shipping costs, the operating earnings increased by 150% sequentially. As a result of this, the company recorded its highest ever 35% EBITDA and 22% net income margin in Q3.
– EBITDA was $7.4m vs $1.1m a year ago and $2.9m last quarter.
– Diluted EPS was at $0.7/share vs $0.19/share last quarter.
– Excluding working capital investment, the company generated $6m of FCF during the quarter.
MD&A – https://www.ceifx.com/upload/media/financial_statements/0001/03/9700672bc5638645a5a0036a7797aac39c5c82e8.pdf
Financial statements – https://www.ceifx.com/upload/media/financial_statements/0001/03/83eb48e5e854ca71313269ee7719856cc488f251.pdf
The financial results speak for themselves. Beyond my blowout case expectations across the board.
The market’s reaction is baffling, especially when compared to Q1’s reaction, which was much stronger. Q1 was also a great quarter, but Q3 blew out expectations (at least mine) much more.
I think the market’s reaction increases the importance of capital allocation. The company is generating significant cash and will hopefully have access to additional debt capacity next year (in addition to the recent revolver expansion). I don’t have visibility into their pipeline of internal pipeline of projects / IRRs and it’s clear that their internal investments and focus have paid off substantially over the last 2-3 years. That being said, if the stock is still below $20 after another strong quarter, a buyback program is a very low risk way to improve per-share intrinsic value in conjunction with their other initiatives. Hopefully the new CFO has this perspective.
A buyback won’t fix the issues that you noted (nano-cap, OTC, low-float) which leads to further questions around the eventual endgame with CXI. With a growing payments business and the ability to lean out the capital structure, a fintech focused PE fund would likely pay a mid-teens multiple for CXI if it were generating $20-30m of cash (maybe more). Not sure what Randolph’s view on PE is. He does seem to like the idea of being public and effectively in control with his 22% stake (which wouldn’t carry the same influence under PE ownership).
All of this is relevant only because the business continues to perform and the thesis is validated.
CURN is set to report its FYQ4 (end October) earnings next week, on January 23.
https://www.sedar.com/GetFile.do?lang=EN&docClass=8&issuerNo=00031806&issuerType=03&projectNo=03481305&docId=5344490
Another great quarter from CURN. Business performance remained solid and positive trends observed during fiscal Q3 are continuing. The Banknotes segment is booming (108% yoy growth) driven by a recovery in international travel as well as the company’s participation in FED NY cash program. The Payments segment (53% yoy growth) continues to expand through the acquisition of new customers. The growth of the Banknotes business is set to slow down next year, but the Payments segment is likely to continue expanding at a similar pace.
Whichever way I look at the company, it is very cheap, especially keeping in mind the continued growth. Over the last year company generated $24m in FCF and $19m in EBITDA. I believe these profitability levels will be sustained/improved going forward. The market values this earnings stream at $105m market cap, while the company likely sits on a decent amount of excess cash. At the very least I would think that the cash generated during the last year ($24m) could be considered as excess cash. This would leave the company trading at 4x FCF or 4x EBITDA.
The next two quarters are going to be seasonally slower. During the call management also hinted on some temporary margin compression:
” I would see that we – in the short term, that you might see expenses growing faster than we would all want. However, we do see it as the time is now to make these investments, like we are converting our systems to NetSuite. We are implementing Kyriba.
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So in short term, you might see our efficiency ratio, margin slip a bit from where it was, but that’s – we anticipate just being short term. The sales teams are very focused to grow revenues. As James likes to say, revenue solves a lot of problems. And so we will continue to focus our top line as well.”
Also, management potential acquisitions, which kind of proves my point about excess cash and probably also is a sign that investors should not be expecting capital return any time soon.
“I’m going to talk about M&A. We do not have a merger hot ready to talk to you. Although this group reorganizational structure allows each of the three managing directors to run their business, free giving me a little more time to work with owners to show those owners why it is beneficial for them to work and merge into the CXI Group, allowing those owners to continue to do what they do best, which is to grow their customer base, increase their revenues while benefiting from the strong back office and second line of defense that our company has in place with our people as well as our systems. We do have five active discussions going on. Again, nothing is hot enough to announce. However, we’re excited about the potential partners that may join the CXI Group.”
Fiscal Q4’22 results (quarter ending Oct 31):
– Banknotes revenue $16.4m vs $7.9m same quarter last year and $17m in Q3.
– Payments revenue $3.4m vs $2.1m last year and $$3.6m in Q3.
– EPS was $0.66 vs $0.25 last year and $0.70 in Q3.
Full year 2022 results compared to last year:
– Total revenue = $66m vs $30m in FY’21;
– EBITDA = $18.8m vs $4m in FY’21;
– FCF = around $24m.
– EPS = $1.83 vs -0.18 in FY’21;
Financials – https://www.ceifx.com/upload/media/financial_statements/0001/03/3d55196141ae32ad95d89d5147d0ae594a81beb5.pdf
MD&A – https://www.ceifx.com/upload/media/financial_statements/0001/03/cee17fc43f457a38cbf493eed3b6034a0f0e9344.pdf
Conference call – https://seekingalpha.com/article/4572009-currency-exchange-international-corp-curn-q4-2022-earnings-call-transcript
A really good high-level overview of CURN from Plural Investing Q4 letter. It is the fund’s largest position.
Copy-pasted directly from the letter. Link below.
“CXI is one of only three major suppliers of foreign banknotes in the United States (such as € or £) and of US dollar banknotes internationally. Banknotes are typically used for travel, and the Covid induced downturn masked major market share gains made by the company after its key competitor Travelex exited. The company earns post-tax returns on tangible capital of 35% today which we think is likely to double as travel recovers and the company’s new businesses bear fruit. CXI is run by its Founder Randolph Pinna, who owns 21% of the company and has high integrity, delights customers, and a 35 year track record of building two banknotes businesses that have delivered strong shareholder returns. The company trades on 7x net profits today and just 2.5x our estimate in three years. We started buying shares at $14/shr (for its US listing CURN) earlier this year, it trades at $16.5/shr today, and we believe intrinsic
value will be $70/shr in three years time. It is our largest position.
We believe that CXI’s Founder Randolph Pinna is the best operator in the industry. Pinna is an entrepreneur with the rare combination of a high energy ‘can do’ attitude but also a frugal and conservative approach to long term decision making. Over the last five years Pinna has succeeded in building a banking subsidiary in Canada, which has depressed profits until now, but we believe will increasingly be recognized by investors as central to driving substantial
earnings growth for years to come.
The Canadian bank has enabled CXI to become one of only three companies exporting US dollars from the Federal Reserve across the world. We estimate this market is worth around $380mm in annual revenues and that CXI will win $40mm of this in three years. That compares to the company’s total revenues of $42mm in 2019. We think this opportunity is greatly underappreciated by investors because the global banknotes industry is incredibly opaque and there is a misconception that the banknotes market is declining.
CXI’s growth is being further enabled by the decline of its key competitor Travelex. Travelex was the second largest exporter of dollars but has mostly exited after fraud was discovered at its parent company. Bank of America is the largest exporter but has been retrenching for some years and accelerated that retrenchment as a response to Covid. The third player is the newcomer Moneycorp, which is growing rapidly and has a banking license in Gibraltar. CXI’s Canadian bank gives it greater credibility and an advantage.
Travelex has also exited the US domestic market, which has allowed CXI to pick up many of its airport locations at favorable terms. The company was not in the airport business preCovid, but today is the sole supplier of foreign banknotes to US airports.
CXI now also faces limited competition in its traditional business of supplying banknotes to US banks. The two other suppliers in the market are Bank of America and Wells Fargo, yet these large banks carry high compliance costs that makes it unprofitable for them to focus on smaller clients. Travelex used to compete with CXI for these smaller clients, but now that it has exited CXI faces little competition. While cash use is declining, the growth in foreign travel and CXI’s market share gains means its business will likely grow for many years.
These various underlying gains that CXI has made over the last couple years have been very substantial but masked by the Covid induced travel slump. The company reported record earnings in its latest quarter as much of that receded, and we think that earnings will continue to surprise investors as the benefits of its increased market share and new businesses come through.
There are some risks with an investment in CXI. Trading banknotes comes with AML and KYC dangers, which is why the company is only targeting lower risk jurisdictions in its expansion globally. Being a small player also limits the size of transactions it can do, but the company’s growth potential is still substantial. And it will be important that Pinna allocates the cash we expect the company to generate well. Nevertheless, we think that at today’s stock price downside over a three year horizon is limited, while the upside if the company’s value becomes appreciated is substantial.”
https://static1.squarespace.com/static/57eff176e58c621a298bfa61/t/63c31bd9cf3aa73258174080/1673731033092/Plural+Partners+Fund+Letter+-+2022%3AQ4.pdf
Another fund letter covering CURN. This time it’s Greystone Capital.
“Moving on to Currency Exchange, this boring, yet incredibly profitable business ploughed through 2022 on their way to record operating performance following years of internal initiatives and investments that are now beginning to pay off. CURN was one of our best performing holdings for the year and represented a situation where share price activity actually followed strong business execution.
During the year, Currency Exchange generated a record $66mm in revenues, up 117% from 2021, on the back of strong travel demand and demand for US dollars, exceeding their pre-COVID run rate by 60%. Increases in international travel, market share gains and increased penetration in global banknotes through participation in The Federal Reserve Foreign Bank International Cash Services Program (FBICS) drove the strong results. As one of only three businesses approved for international currency distribution inside of FBICS through their Exchange Bank of Canada, CURN uses this advantage to source cost effective dollars from the Fed as well as win new and larger bank customers within their banknotes segment. I believe CURN can eventually gain a double-digit percentage share of this market on their way to continued growth driving high incremental profitability. Importantly, on the back of significant top line growth, Exchange Bank of Canada generated its first full year of profitability, opening the door for favorable borrowing opportunities from here. Turning to the Payments segment, whose merits deserve more than one sentence, top line growth remains strong, with revenues increasing 61% during the year while reflecting strong operating leverage and driving both diversification and resilience in the business away from banknotes.
The attractiveness of CURN’s business model stems from the incredibly high operating leverage whereby incremental increases in banknotes and payments revenue fall significantly to the bottom line, driving massive EBIT expansion as the company grows. As with many of our businesses, CURN focuses on a specific and smaller customer niche, out of the reach of competitors such as Bank of America and Wells Fargo. In addition, the void left by Travelex exiting the banknotes business has created significant whitespace for CURN to not only gain export customers but enter into airport retail locations that Travelex left behind. Fee based agency agreements without the use of leases make the unit economics in large airports very attractive. Furthermore, despite misconceptions regarding the banknotes industry, demand for US dollars continues to strengthen, providing a decent growth runway for CURN in the years ahead.
Layered on top of my optimism for the business are the levers that management can pull on the capital allocation front to drive further value. CURN’s market cap is around $120mm USD with $88.5mm in cash on the balance sheet. The majority of this cash serves as inventory located in CURN’s vaults and is used for transacting, but I’d estimate there is $30-40mm of excess cash not needed for inventory purposes able to be returned to shareholders or put to use via M&A. Invested alongside us as the largest shareholder, founder and CEO Randolph Pinna should be interested in taking steps to unlock this value by introducing some leverage into the organization to free up some of the cash used for inventory, while thinking about share repurchases or dividends. In October, CURN took the step of hiring a new group CFO, Gerhard Barnard, who seems to understand the task in front of him. A situation where CURN continues to grow, operating leverage and profitability remain strong, and management consistently reduces the share count would help juice returns in a big way. I look forward to seeing what Currency Exchange can accomplish in 2023 and believe there is still room for significant upside from here.”
https://www.greystonevalue.com/_files/ugd/47fd79_79fa4050d7784ca2b9e622c574c9abb1.pdf
At this point CURN is basically a hedge fund hotel (i.e. a consensus long among small cap value funds). When all these funds pile into an illiquid small cap it goes up fast. But if the story of the past few quarters breaks down things can get ugly quickly ..
FWIW I like this company and own a few shares. But I’m getting a bit jittery about the risk/reward given all the optimism surrounding this name.
CURN’s main payments business competitor, Moneycorp, is looking for a sale. The rumored potential price range is 12-13x EBITDA on about GBP 70m in last year’s EBITDA.
https://community.ionanalytics.com/moneycorp-owner-bridgepoint-picks-advisers-for-upcoming-sale-sources
Does anyone see significant risk from post-SVB bank runs on this company? My understanding is that, if the fed/treasury do not come out and state their intention to guarantee bank deposits, then business accounts at small banks are likely to be emptied into bigger banks (apparently this is already happening). This could cause many small banks to become insolvent and fail (which may be CURN’s clients).
Their banking sub does not take deposits, from 2023 annual report:
“The Company’s wholly owned Canadian Subsidiary, Exchange Bank of Canada (EBC) is a non-deposittaking, non-lending Schedule 1 bank engaged in foreign exchange services. “
Oh sorry, misunderstood your comment.
“Our preparations for the coming summer are also vitally important because we continue to see very high booking demand among our customers….Booking levels here are so high, especially for Easter & the weeks thereafter” -Deutsche Lufthansa
International travel plans are at an all-time high as well.
A few thoughts on CURN’s Q1 earnings before the conference call. Quite a timid quarter, all as expected and guided by the management. Q1 is the weakest period seasonally for the banknotes business. Having said that, I did expect a slightly lower impact from seasonality given how strong the recent growth was. As management previously communicated, there was some margin compression, mostly driven by a seasonally lower revenue base, increases in headcount, and stock compensation expenses. Other than that, the Payments business stayed unaffected and reported a slight growth on QoQ basis.
CURN still remains cheap with a market cap of $115m, net cash at $74m (mostly working capital), and LTM EBITDA of $18.5m.
The conference call might have some additional color on the expectations for the current year. So far, the positive language in the PR indicates no changes in the previously communicated outlook:
“The first quarter of 2023 demonstrated strong year-over-year growth as we continue to see increased demand for international travel. We are also seeing a return to more traditional seasonality in travel patterns, which historically has translated into Q1 being the weakest quarter and Q3 being the strongest as it relates to banknote revenue. We anticipate that pattern will reoccur in 2023, supported by continued year-over-year growth as international travel is expected to recover to pre-pandemic levels during this year.”
Fiscal Q1’23 results (ending Jan 31):
– Banknotes revenue $13m vs $16.4m previous quarter. Up 26% YoY basis.
– Payments revenue $3.5m vs $3.4m previous quarter. Up 60% YoY basis.
– EPS of $0.25 vs $0.66 previous quarter. Compares to $0.23/share in Q1’22.
– EBITDA was reported at $2.8m vs $3.1m same period last year.
– FCF, including working capital changes, was $2.93m.
– Net cash decreased to $74m vs $83m last quarter mainly due to working capital investments.
https://www.ceifx.com/news/currency-exchange-international-announces-financial-results-for-the-three-month-period-ended-january-31,-2023
Just read through the latest CURN conference call. Overall, the whole call was very upbeat with a significant focus on expansion both domestically and internationally. Randolph was especially excited about the potential of the Exchange Bank of Canada saying that it could one day be bigger than the entire CXI itself.
In Q1, the company completed earlier announced organizational restructuring putting new personnel in charge of the banking operations and consumer-focused forex business. Given that the organizational transition has been completed, Randolph now plans to fully focus on potential acquisition targets. It seems that we are going to hear names of the specific targets over the next quarter or so.
Randolph also commented on the banking crises and its potential implications on the company’s operations. According to him, there is no material exposure to CURN or its shareholders.
Other than this, nothing is out of ordinary. The company continues to invest in system upgrades and hire new employees clearly preparing for the next growth stage. Moreover, management expects further growth in retail forex operations on the back of the full travel recovery expectations in 2023, mostly based on China reopening.
CURN has reported fiscal Q2 results (ending April 30). I think it was a pretty solid quarter, and business performed in line with management’s earlier communication that Q1 and Q2 will be affected by seasonal and temporary issues (see my Jan 25th comment above).
Management gave an upbeat outlook for the business – both in the short and longer term. For the short-term, they expect a very strong second half of the current fiscal year, projecting 20% YoY growth. This continued growth is expected despite a difficult comparison vs the second half of 2022 when travel saw a significant recovery from covid years. Upbeat short term expectations were noted a number of times during the conference call. Keep in mind that management is communicating this outlook with already half of the fiscal Q3 in the pocket, so they should have pretty good visibility and confidence in the numbers.
For the longer-term, management has also talked a lot about the growth opportunities that they’re currently working on. Management is clearly very excited about the business prospects and is heavily investing into further growth – CEO expects CURN to double or triple over the next few years:
Despite this seemingly very positive outlook, CURN remains cheap trading with a fully diluted mcap of $121m vs $86m net cash (large part of which is working capital used in operations) and TTM EBITDA of $18.6m.
But that might change for the better soon – during the conference call management has finally started to openly discuss how cheap and undervalued CURN is. Apparently, management is currently working to improve IR efforts and bring more investor awareness to the company, its business, and its valuation.
If the growth continues as expected and the stock gets an additional boost from these IR efforts, CURN could be a home run from the current levels.
A bit more details on Q2 financials (ending April 30):
– Banknotes revenue $15.4m vs $10.9m same quarter last year. The segment showed continued improvement relative to last year’s covid affected results. As a reminder, Q1 is usually the weakest and Q3 is the strongest quarter seasonally for the banknotes segment, with Q2 standing somewhat in between.
– Payments revenue was $3m (vs. $3.5m in Q1 ’23, $3.4m in Q4’22, $3.6m in Q3’22, $3.2m in Q2’22). The segment experienced some headwinds due to a softer macro environment and a decrease in transaction volumes from major clients. As a result, payment revenues saw a slight drop on both QoQ and YoY basis. However, management expects to mitigate these headwinds by growing the customer base (the pipeline of potential clients is apparently already full) and said that some new clients have already signed deals that are just starting to take place.
– Diluted EPS of $0.33 vs $0.19/share in Q2’22.
– EBITDA of $3.8m was basically flat YoY. EBITDA margin fell to 8% vs 10% same quarter in prior year. Management explained it as seasonal low for demand of foreign currencies associated with international travel.
– FCF adjusted for the change in NWC stood at $2.8m vs $1.8m same quarter last year.
– Net cash increased to $86m vs $74m last quarter.
Conf. call – https://app.tikr.com/stock/transcript?cid=134721112&tid=225923657&e=1841947261&ts=2838828&ref=3no6ed
Q2 financials – https://sedar.com/GetFile.do?lang=EN&docClass=5&issuerNo=00031806&issuerType=03&projectNo=03549882&docId=5445455
Agree that this was generally positive, continued momentum is promising. The payments headwind is a bit concerning, but don’t want to read too much into one quarter. Plus the number of additional growth levers reduces their reliance on any one product.
As the price vs. intrinsic value difference widens, capital allocation becomes more critical to unlocking this value. They discussed M&A on the call and don’t want to do anything “dilutive.” I don’t have any reason to think that they would issue shares for a deal at this value, but that would be problematic.
The IR effort is a positive (and a bit overdue in my view). The quickest way the boost the price (especially given the illiquidity) would be to repurchase shares (even if the repo amount is relatively low). A rising share price and a market cap that makes CXI investable to more institutions could do as much or more as a renewed IR effort (at least in my opinion).
FWIW, this is one of the largest positions in my PA (owned for ~3 years now). It has been great to see the financial results, but still waiting for the share price to reflect (the fun part…) Interested to get a sense for fundamental objections (excl. size, OTC, technical constraints) to owning the name as a sanity check.
On the Payments side, my understanding is that they are growing in terms of clients and market share but lots of clients are doing smaller FX transactions this year after having overbought inventory in early 2022 because of the supply constraints.
I’m just looking at this for the first time, and I think the biggest problem I see with it is it’s lack of a strong catalyst. That’s a weird thing to say about a stock that’s up over 60% in 18 months since it’s recommendation, but I think it accounts for the continued value gap.
Typically a business as profitable and cheap as this would close the gap using buybacks or dividends. But in this case it appears they need that cash for their growing business. Which might be the best choice for long term returns, but leaves shareholders only riding earnings growth until the market cap reaches a level that attracts more shareholders to expand that PE ratio. And $115M is a long way from any index inclusion that I’m aware of. S&P 600 smallcap goes down to $750M but it also has listing rules that would filter out CURN.
Also its weird that payments stumbled this quarter and Banknotes is outgrowing it so far this year. But that doesn’t bother me much as overall growth is still excellent. There is a lot I love about this business but I’m struggling with pulling the trigger on it.
Agreed, this is not a special situation anymore. There’s no clear ‘catalyst’ that will make the stock pop. At this point it’s basically a bet that this is a decent business and that the CEO, who owns a package of stock worth ~$25m will run the business in a (minority) shareholder-friendly way.
On the Payments side, as I said in my previous comment, clients are doing smaller FX transactions this year after having overbought inventory in early 2022 because of the supply constraints. They are still growing their market share and volume.
The banknotes business is coming back strong from the travel comeback.
I think it’s hard to understate the potential of EBC being one of the very rare participants in the Federal Reserve’s Foreign Bank International Cash Services (FBICS) program. That means they can buy mint notes directly from the FED instead of paying a markup to Bank of America. They can then sell those mint notes to central banks all over the world. This could be quite major for CXI. I think central banks really want to do business with CXI.
A buyback and EBC could be catalysts.
Does anyone know anything specific about the risks of transporting cash for the company? I haven’t heard the management elaborate on that in a concrete way. I wonder about the potential for losses related to, maybe, criminal activities, if the transports are insured in any way and how the process looks like in general.
During Q1 2023 earnings call they said:
“And we’ve actually done our largest cash trade I’ve ever done in my career just in the last quarter of $54 million in one trade. And the bank had to get special approval due to the size of the bank and the fact that the size of that transaction was bigger than the asset size of the bank.”, so does that mean that they also transported $54 million in cash to a customer in one go? If so, I suppose that creates a pretty significant risk. What if the company loses such a transport? Is it insured in any way, and if so, what is the potential for loss here?
Also, in Q2 2023 earnings call:
“But the banks are typically wanting to trade, let’s say, a US$30 million for US dollar. That’s an example where again, they give us digital US dollars and we ship them, you know, new US dollars freshly printed from the — from the Fed.
They want to make sure that when they prepay that 30 million that we’re going to deliver the notes. And so they want an assurance and, yes, you’re correct, Robin, that this really became a new request because of the crisis.
And then they recognized, well, Exchange Bank doesn’t even have $30 million in equity. So we need this corporate guarantee. And we are doing that with these new banks. And our primary lender is comfortable. They’ve been involved — aware of what we’re doing, of course, but it’s basically just an assurance from CXI that EBC will complete its transactions.”
If anyone knows a thing or two I’d highly appreciate any information! :)
I asked management about this and I got the answer.
Large amounts are 100% insured by the carriers. The $54M was 100% insured. Also, the client pays for the amount before the transport so no risk to CXI.
Smaller amounts under $40,000 are self-insured and they do get losses regarding that. Annual loss of about $750,000 related to this. However, they recently put in place a new fraud manager which should reduce those losses.
Thanks a lot for that :) I appreciate it!
Strong fiscal Q3 quarter (ending July 31) from CURN with a record topline performance in both segments. The Banknotes business was driven by international travel reaching near pre-Covid levels in North America. The segment also saw a solid increase in airport/non-airport location numbers and wholesale client relationships. Meanwhile, the Payments business has rebounded from the two weaker quarters, as the previous temporary issues subsided and the client onboarding/transaction volumes picked up.
CURN remains cheap with a market cap of $120m, net cash at $91m (mostly working capital), LTM EBITDA of $18m.
I’ll be waiting for conf. call later on today for further color on the operational performance/outlook from the management.
More details on fiscal Q3 results:
– Banknotes revenue increased by 11% YoY to $19.5m in Q3, from $17m same quarter last year. The growth was driven by easing of restrictions on international travel, signing of new wholesale clients and opening of new retail locations. QoQ, revenue increased by 27% from $15.4m.
– Payments revenue increased by 7% YoY to $3.8m, from $3.6m same quarter last year. QoQ, revenue increased by 27% from $3m.
– Diluted EPS was $0.60 vs $0.70 same quarter last year and vs $0.33 in Q2’23.
– EBITDA was $6.6m vs $7.4m same quarter last year and vs $3.8m last quarter.
– Net cash increased from $86m last quarter to $91m.
The comment on buybacks was pretty discouraging in my view.
The business is hitting a profitability headwind due to the growth investments (which seem to be critical / value-add). As a result, the stock price isn’t going anywhere for the next 6 months or so. This is the time to take $20-25m of excess cash (or borrow some portion of that) and buy back 15-20% of the shares (if there is enough liquidity) before the price reflects this improvement. I’m confident that margins will normalize in the high 20s or above and we may eventually get a re-rating, but buybacks are needed for outsized returns.
The idea that they are “investing in their people” instead of this was a frustrating platitude. Buying back stock and accretively increasing everyone’s ownership (including employees) is one of the higher-ROI investments you could make in your people. Also not mutually exclusive with anything else they want to do, except maybe for a larger M&A deal….
Agree, the buybacks language during the call was somewhat disappointing. But as long as the company continues to grow organically or through small acquisitions, it should gradually drive improved market valuation.
From the call:
This stock should uplist on NASDAQ or NYSE or something. They are big enough and most revenue is in the US.
The reason for no buybacks are lack of liquidity. Only trades a few million $ per month. Unless there is a large holder that wants out, I don’t think buybacks make a whole lot of sense.
Recently, CURN announced its participation in a micro-cap investor conference. It’s good to see management following through on their plan. Let’s see if this actually moves the needle for the stock price here. Currently, the company is just too cheap.
https://finance.yahoo.com/news/currency-exchange-international-participate-ld-123000558.html
Anyone know where to find a copy of the presentation and / or a recording?
Thanks
Any insights of the recent drop in share price here since July?
I do not have any particular insights here. Stock is down 20% since the announcement of fiscal Q3. It’s an illiquid name, and even small incremental selling pressure might push shares down. Total trading volume over the last month (since Q3 results) is only $2.7m. As discussed above some investors might be concerned regarding the company’s capital allocation plans, but I don’t think anything has changed over the last month.
From Plural Partners Q3 letter on CURN:
CXI is one of only three major suppliers of foreign banknotes in the United States and of US dollar banknotes internationally. Banknotes are typically used for travel and the Covid induced downturn masked major market share gains made by the company after its key competitor Travelex exited. CXI is run by Founder Randolph Pinna, who owns 21% of the company and has high integrity, delights customers, and a 35-year track record of building two banknotes businesses that have delivered strong shareholder returns. The company trades on 8x P/E today and we expect earnings to nearly double over the next three years. That puts the stock on just 4x our estimate of profits in three years’ time, net of cash generated in the interim. We started buying shares at US$14/shr in mid-2022, it trades at US$15/shr today, and we believe intrinsic value will be US$55/shr in three years. The stock ended Q3 down 24%
from its peak earlier in the quarter.
As outlined in our last letter, we see two key opportunities for the company. Both of those disappointed investors in the quarter, but we expect that disappointment will be temporary.
We think CXI’s first opportunity is to grow outside the United States.
The company is one of only three licensed to supply dollar banknotes from the Federal Reserve to banks across the world, which is a market that we think is worth around $380mm in revenues. We expect CXI will take substantial share in this market, which is material versus the company’s total revenues of $77mm today.
Building out the international business has proved frustrating. While the company has signed on several major banks as potential customers, the US banking crisis earlier this year made these customers reluctant to rely directly on supply from a small company like CXI, even though CXI does not take deposits and does not carry traditional banking risk.
The company has only $130mm in assets, which means that if a customer like the Bank of Singapore makes a payment for $100mm of banknotes CXI’s assets would temporarily almost double until it shipped those banknotes.
CXI and its customers have found a solution, which is to use a major bank with hundreds of billions of assets to act as a middleman and guarantee transactions for a small fee.
We see this as a frustrating delay for a couple quarters and so while we were wrong in our timing, we have not changed our value of the company.
We think CXI’s second large opportunity is to use its cash.
The company holds $98mm in cash and $6mm in debt, a huge amount of net cash compared to its $95mm market cap. We estimate that $80mm of this cash needs to be held as physical banknotes so should be thought of as inventories, meaning excess cash that could be deployed is closer to $20mm. Still, investors are increasingly skeptical that this cash will ever be deployed as it appears to grow every quarter and management’s capital allocation plans could be clearer.
We have a different view. On the recent earnings call management stated that their most likely use of cash is to make acquisitions and that some incumbents in the banknotes market may want to exit.
We see this as a potentially excellent use of cash if the company remains disciplined in the price it pays. Virtually any merger of banknotes businesses would result in large synergies as much of the cost base – such as vaults, IT, and staff – does not have to be duplicated.
While management provided no further details on potential acquisition targets, there are only three other major companies in the industry: Bank of America, Wells Fargo, and Moneycorp. We view a deal with Moneycorp as unlikely as much of its business is in regions that CXI views as high risk. On the other hand, both Bank of America and Wells Fargo have downsized their business over time, which suggests they are willing sellers of some or all of those operations.
We believe that CXI’s roughly $80mm in banknote inventories could be financed with credit facilities at a conservative 0.5x loan-to-value. That financing would free up an additional $34mm beyond the $6mm in credit facilities that are already used. Combined with the company’s nearly $20mm in excess cash brings deployable cash for an acquisition above $50mm while still leaving a strong balance sheet with no debt beyond modest inventory financing.
A $50mm acquisition at CXI’s valuation of 8x P/E would (i) increase earnings by roughly 50% before synergies, (ii) demonstrate that the company’s cash is not ‘trapped’, and (iii) likely lead to a much higher multiple as investors start pricing in future cashflow being deployed in further high return acquisitions.
The company has yet to make acquisitions of this size and so some investors have concluded that it will never meaningfully use its cash. On the other hand, we believe that while having to wait is frustrating management fully intends to use its cash but that deals like this take time and they are keen to not overpay – an attitude that we support. Founder & CEO Randolph Pinna has been involved in several large M&A transactions in his career.
We expect that investors will greatly reappraise CXI’s intrinsic value over time as the business grows outside the US and management deploys cash. We also believe that the potential downside over a 3-5 year horizon is low if we are wrong given the company’s fortress balance sheet, 8x P/E valuation, and double-digit growth rate.
https://static1.squarespace.com/static/57eff176e58c621a298bfa61/t/6525dc8c475df53f8a415836/1696980108558/Plural+Partners+Fund+Letter+-+2023%3AQ3.pdf
TSA checkpoint travel numbers still coming in strong.
https://www.tsa.gov/travel/passenger-volumes
On average up 10% vs last year up to now in November. Up on average 10% from August to October as well.
Normal course issuer bid annouced today. Will believe it when they actually start buying back shares, but this is a positive surprise.
Certainly a big positive. CURN has announced a buyback program for approximately 5% of outstanding shares (c. C$5m in total). And while that might sound low, actually to fill this buyback authorization in one year, the company will need to buy c. 25% of the daily volume every trading day for the whole year. That’s a significant incremental buying pressure.
Now we need to see the company executing on it. As soon as that starts happening the stock should shoot higher.
Also will be interesting to hear management’s thoughts on the buybacks and earlier planned M&A when the current quarter’s earnings get reported.
LFG
how do you get 25%?
NICB was launched for 322,169 shares. If spread out over 250 trading days, we get 1300 shares to be repurchased each day. That’s around a quarter of the average daily trading volume.
This also ties in to the language in the press release:
“Currency Exchange will have the right to repurchase under its NCIB, during any one trading day, a maximum of 1,343 Common Shares, representing 25% of the average daily trading volume.”
According to SEDI filings, there has been no repurchase activity in the two weeks since the program was initiated. Obviously two weeks is not that long, but woud be encouraging to see at least some activity.
This is what I was waiting for, really like the company and a real buyback program is the missing catalyst to connect price closer to value here. But just so I’m not entirely high fiving into an echo chamber, here are some (minor) concerns I have.
1) Dilution: I can’t figure out why their diluted share count is only 6,696k when they have 6,424k shares + 466k options exercisable almost all in the money (and another 300k vesting in the future).
2) Expenses really ramped up last quarter, right now I’m chalking it to catching it up to the higher product volumes, but it’s weird that it’s post the big bulge of sales increasing.
3) I don’t expect future earnings growth to be outstanding, I’ll be happy with 10-15% annualized. Payments isn’t the rocket that it looked like a couple years ago, some of the recent growth is just grabbing market share from an exiting competitor, and US while not saturated isn’t going to support the level of previous growth now that they’ve reached a larger mass.
SEDI filings show zero stock repurchased under the new buyback program announced with fiscal Q3 results. Not a good sign, but the company might be in a black-out period unable to carry out any repurchases before it reports results for fiscal 2023 ending Oct 30 (expected to be released in mid-January).
I can confirm they are in a black-out since they announced the NCIB on November 29 (Q3 was announced in September). They will be able to initiate it after they report Q4 in January.
Hopefully comments / questions in the Q4 earnings call keep the pressure on management to execute on these and also to clearly articulate their plans (a bit confusing to say that they won’t do buybacks on the last call and then drop an NCIB on everyone.
With incremental buying pressure, we could see the last 2ish years of serious fundamental improvement priced into the stock in short order. Still won’t belive it until I see the SEDI report….
The company has set the Q4 earnings release date for the 24th of January. The earnings call will be held the day after.
CURN reported Q4 results (ending October 31) yesterday. I did not have a chance to listen to the call yet, so cannot comment on that. But from the press release, there are no surprises – the business continues to chug along and remains cheap.
The Banknotes segment has grown +17% YoY as travel recovered close to pre-COVID levels in the US/Canada. The payments business showed a slower +4% growth. Operating Income/EBITDA were up c. 8-9% YoY. And while the reported net income/EPS is down materially, this was driven purely by fluctuations in tax charges rather than any negative impact from operations.
What concerns me a bit is that the business has expanded substantially with annual revenues +21% vs 2022, however, none of that has been reflected in the earnings yet, as expenses have grown at an almost identical pace. Throughout the year, CEO has been emphasizing the ongoing investment into staff and sales force in order to create a “scaleable enterprise”. The employee count increased 19% from 334 to 409 over the last fiscal year. The good news (hopefully) is that this staff expansion is already coming to an end – during Q4 the employee count growth has finally stopped. I hope that in 2024 we will finally see the rewards of the promised higher scale.
So far there have been no repurchases on the $5m NCIB announced in November. The company has likely been in a blackout period, and I would expect repurchases to finally start with this earnings release. Capital allocation is a key concern/issue here, and any buybacks would go a long way in CURN stock rerating.
I hope to hear more details in the conf. call on the buybacks, previously mentioned M&A plan, and scaling of the organization.
Other than that, CURN remains cheap with a market cap of $115m, net cash at $78m (mostly working capital), TTM EBITDA of $19.2m. Note that net cash decreased slightly from $91m as of last quarter to $78m mainly due to an increase in line of credit and significant working capital investments during the quarter.
See below for more highlights on the financials: Q4 results:
– Total revenue up 15% YoY to $22.8m vs $19.8m in same period last year.
– Banknotes revenue grew by 17% YoY to $19.2 from $16.4m in Q4’22.
– Payments product line increased by 4% YoY to $3.6m vs $3.4m same period last year.
– Net income $2.3m (affected by tax expense fluctuations) vs $4.4m in Q4’22.
– EBITDA was $5.9m vs $4.6m same quarter last year and vs $6.6m last quarter.
– FCF of $4.1m vs $6.7m last year (same tax nuance as with net income applies).
Annual results:
– Total revenue up 24% YoY to $82m vs $66m last year.
– Banknotes revenue up 24% to $67.6m vs $54.6m last year.
– Payments up by 16% to $14.4m vs $12.4m last year.
– OPEX increased by $15.6m to $63.2m and was at 77% of revenues vs 71.8% last year.
– Net income at $10.2m vs $11.8m last year.
– EBITDA up 2% to $19.2 vs $18.8m
– FCF at $14.3m vs $15.6m.
What I thought was interesting (and what the company didn’t mention in the PR – disappointing; sweeping it under the rug) is that the company posted a $3.2m loss in “losses and shortages”, compared to $600k last year. The charge in Q4 alone was $1.5m.
Apart from the rising headcount that’s also a big part of why operating profit isn’t up as much as revenue. They discussed it on the call a bit.
His answer around the repurchases (something to the effect of – it is starting now, but not yet, and we have agreed that we will do it) is encouraging and seems to align with the view that they have not been able to repurchase yet. We will see what the SEDI filings show.
The other issues are frustrating, but manageable. Capital allocation is the biggest lever to pull in the near term.
For the “losses and shortages”, during the call, Gerhard mentionned 2/3 was non recurring.
If you put back this non recurring $2M into earnings, and adjust for taxes, you get a pretty good increase in adjusted earnings, up 15-20% for 2023.
They also mentionned they still expect the first large shipment for international banknotes through the FED to occur in February.
On ‘losses and shortages’ I am tempted to agree with Ian – management expects these to be one-time in nature and has taken steps to ensure these do not repeat going forward. Excluding these losses earnings would have been materially higher.
On being fully staffed:
However, there will be continued short-term pressure from investments to scale operations:
Disappointingly, on buybacks or capital allocation, the company did not really provide any clarity. So we will just have to wait and see if they start implementing NICB.
Nothing in this week’s SEDI filing, despite the end of the blackout period. This report includes last Wednesday (1/24) through yesterday (1/31).
I see they still haven’t started the buybacks yet. Doesn’t look very inspiring really, at least this particular short-term catalyst angle.
CURN has been highlighted by Artko Capital in its 2023 investor letter.
https://www.hvst.com/page/art-capital-lp/posts/artko-capital-lp-2023-annual-partner-letter-wZrTz4Ka
Side note: bit sad if one of your “good performers” underperforms IWM, SPY, QQQ, VT, oil and bitcoin :P
A big positive – two days ago CURN filed a document with share repurchases for the whole of February. It appears that the company has been buying shares almost daily since February 1. Filing for the whole period was done on March 7.
In total 20k shares were repurchased at around current price levels of $18/C$24 – it seems the company is fully utilizing the maximum daily limit of 1300 shares (25% of daily volume).
If this pace of repurchases continues CURN price is bound to move upwards. So far less than 10% of the buyback authorization has been used.
Thanks dt, could you please share the link or let me know where you found the document? I wasn’t able to find it.
Have a look at SEDI reports https://www.sedi.ca/sedi/SVTReportsAccessController?menukey=15.03.00&locale=en_CA
Or here: https://app.tikr.com/stock/ownership/insiders?cid=134721112&tid=225923657&ref=3no6ed
Is it in the weekly report? I check that regularly and haven’t seen anything. Or is it in a different section. Tikr doesn’t include anything either.
Obviously a big positive if they are, in fact, buying back shares.
Click SEDI link above
Choose summary reports.
Click transaction detail report
Now enter criteria for search
Starts with Currency.
By Transaction Date from 1.1.24 to 3.8.24 can’t future date so through Friday last.
Skip the optional stuff.
Hit enter or whatever
New screen shows Currency International with link in first column.
Press link.
View report.
TXDeepValue the repurchase activity is shown in the Insider Transaction Detail report within the SEDI link dt shared. Thanks dt! Excellent news.
Thanks. This is very positive. Earnings call this week, though all of these buybacks were technically in their Q2. A lot to watch for….
CURN released fiscal Q1’24 (ending January) results yesterday. I will share more comments after the call, as so far management has provided rather dry numbers only.
– The topline has grown by 7% YoY, which is below the 15% levels delivered over the last two quarters – this slowdown in growth is partially explained by stabilizing travel flows (i.e. post-covid recovery is probably already in the back mirror), and decline in revenues from Canada.
– In the U.S. both businesses improved nicely with Banknotes growing +20% and Payments +33%.
– However, the issues in Canada seem to continue, where both Banknotes and Payment businesses saw declines of 19% and 33% respectively (declines for the third consecutive quarter). Management has not provided much of an explanation for this (aside from ‘decline in transacted volumes’ and ‘unfavorable foreign exchange movements’). Maybe there will be more in the call. Canada accounts for 20%-30% of the company’s revenues.
– EBITDA is down 18% as the largely fixed cost base did not match the above-mentioned decline in Canadian revenues.
Hopefully, management will shed more light on these figures during the call. The start/continuation of the buybacks is probably more important than what probably is business-as-usual revenue volatility in the Canadian market.
The conference call shed some more light on the Canadian revenue issues and other topics. Generally, management is quite upbeat about the prospects going forward (as they always have been).
I think repurchases are set to continue at the maximum allowed pace (25% of daily volume or 1325 shares/day) till we have CURN trading materially higher.
A few additional notes below.
– From management’s commentary, it seems that the revenue declines in Canada should be reversed during the second half of the year. This is how it is being addressed (ECB = Exchange Bank of Canada):
– On buybacks so far:
– Management cautiously referred to surplus cash being at the levels of $5-$10m, meaning the current NCIB is fully financed by this excess cash.
– Management intends to be very disciplined on acquisitions:
DT & All – Sincere thank you for this writeup and comments. I’m trying to wrap my head around the market size of the various markets CURN/CXI plays in (banknotes, payments, other). I’ve been reading Moneycorp’s (MC) annuals to get a better sense, and it appears the market is HUGE (MC claims $21B TAM and they’re capturing 1%). Is this number real? If so, who’s the leader in this and can CURN/CXI make a dent? Thank you!
I asked CXI to answer your question directly. Here is their answer: “yes we agree that the global banknote and payment markets are massive – tens and hundreds of billions depending on the product line. Payments being significantly higher than banknotes. We are in a situation similar to moneycorp that while we have captured material revenue over the years and continue to grow at an accelerated rate, this only represents a very small fraction of the overall banknote and payment flows. This leaves tremendous opportunities for CXI and similar companies. Market leaders are tier 1 banks – Bank of America, JP Morgan, Citibank, HSBC to name a handful. Bank of America is also the primary banknote (dollar) distributor globally. Most large banks focus deeply on cross-border payments, along with thousands of other banks, fintechs and money service business providers. Market is massive therefore establishing the branding, technology and familiarity are huge to continue the growth trajectory”
Thanks, Ian. Really appreciate the help and scuttlebutting.
No problem. My pleasure.
CURN released Q2 earnings results (ending April 30). It was mostly business as usual. The company remains cheap and currently trades with a market cap of $127m, while holding $107m in net cash (mostly working capital) and generating $18.4m in TTM EBITDA.
Buybacks have continued, albeit at a slightly slower pace than in February. So far the company has repurchased 67k shares over the four months, spending at total of C$1.7m (or US$1.2m) on buybacks. During the conf. call management did not provide much color on repurchase program, except that it continues to be the top priority for CURN.
The only detail mentioned regarding the previously-planned M&A was that the company will focus it on the Banknotes business instead of Payments:
A few more details on the earnings and from the conference call are provided below.
As previously communicated by management, the revenue growth stayed a bit depressed in Q2 due to underperformance in the Canadian market. Revenues increased by 7% YoY, supported by strong results in the US, where topline grew by 15%. Specifically, the US banknotes business grew by 11%, and revenue from payments jumped by 42% during the quarter. In contrast, Canadian revenues declined by 15% due to ongoing struggles at the Exchange Bank of Canada due to tighter credit conditions and reduced volumes. Management has already set up the new trust accounts and agreements, which should provide comfort to international clients and restore volumes in the Canadian subsidiary. The implementation has taken a bit longer than expected due to legal considerations, but management remains optimistic about a recovery in the latter half of the year:
Profitability was more or less fine with EBITDA of $3.9m and FCF of $3.3m (flat to slightly up YoY). Margins were slightly down due to SG&A costs outpacing the topline growth. Headline EPS has dropped substantially – to $0.08, down from $0.35 a year ago. However, this was related to one-off accounting matter instead of any operational issues – management reassessed recoverability of the loss carryforwards of the Exchange Bank of Canada and had to slightly reduce the deferred tax assets in Canada. Adjusted EPS stood at $0.29.
Also on seasonally higher Q3:
MD&A https://www.ceifx.com/upload/media/financial_statements/0001/04/8e498350271f2bc2359fef5a472e808e581156b7.pdf
Conf. call https://seekingalpha.com/article/4699106-currency-exchange-international-corp-curn-q2-2024-earnings-call-transcript
Does anyone have any interesting thoughts on the theoretical performance of CURN in a potential future recession? I’m thinking about the sizing here, because as we see the company has a devoted and smart owner, high growth potential due to the factors discussed above by dt and others and nice margin of safety in the form of excess cash that can be put to some good uses to further improve the results. What is not that great in my view is the potential for a recession / market crash nowadays which should influence the position sizing here. Not talking about the potential market’s reaction, but rather the underlying business performance during such a time.
Any thoughts on this?
Counter intuitively the Bank Notes business should do really well. It may even have a antifragility factor to it as other countries will rush to hold USD banknotes vs other currencies. Travel and payments will presumably go down, while bank notes from large/larger institutions will go up.
Is this thesis (bank notes business does better in a recession) borne out by CURN’s past history?
Fortunately, not thesis. That said, I’m sure you can find lots of info for both sides (https://www.knightsbridgefx.com/currency-exchange-during-a-recession/). I’m sure a lot depends on the type of recession. The basic premise, countries, institutions, wealthy individuals begin buying what they perceive as safety. Creating a lack of supply and to CURN’s advantage, more transactions. If you Google, Perplexity, and YouTube search this concept you’ll find lots of info on it.
CURN is continuing with the buyback and has repurchased 12.5k and 15k shares in June and July (these get reported once a month). Buybacks were done at c. C$26/share, in line with the current trading levels. In total that’s an incremental C$450k spent on repurchases.
CURN released fiscal Q3 results (ending July 31). No real surprises – business continues on slow and steady growth trajectory. TTM EBITDA stands at $19m vs $125m mcap.
During August, the company was buying back stock at a maximum allowed rate (1300 shares) and has repurchased another 24k shares at around C$25.5/share. Although these repurchases seem tiny when compared to the market cap, they actually make up significant portion of a daily trading volume.
I continue to think the company is cheap and the ongoing buybacks will eventually drive re-rating in the shares.
hi @dt,
Can you remind me why CURN remains a “special situation” play?
For example, what are the catalysts we are currently looking for?
CURN has been in the tracking portfolio for four years. While it has performed well and remains undervalued, it’s now looking more like a fundamental undervaluation play vs a special situation.
FAR and ABCP have also been in the portfolio for a long time, but I can clearly see why they have remained “special”, with well-defined catalysts/timelines and asymmetrical payoffs.
I agree that there is no longer any hard catalyst for the shares to re-rate. My last one was that buyback program will push the shares upwards, but so far the continued buybacks did not have a sizeable effect and management seems to be unwilling to make a larger cash return to shareholders (e.g. via tender offer).
However, I have a position myself and therefore kept it open on SSI. Although the special situation part of Banknotes business recovery with travel has already played out, financially the company is performing way better than was expected at the time when SSI member Aladdin shared this idea – Banknotes revenues up from $40m in 2019 to $70m TTM, Payments revenues up from $8.4m to $15m. EBITDA has increased 3-fold since 2019. But if you look at the stock price, it is still at the same levels as it was in pre-COVID years. The company has hardly ever been so cheap on any valuation multiple you might take (see here for examples https://app.tikr.com/stock/multiples?cid=134721112&tid=225923657&tab=multi&ref=3no6ed).
CURN can actually buy back more than 1343 shares/day.
The daily max limit under NCIB applies only to Canadian exchanges.
They can buy more in US OTC market. In fact, most of the time CURN (the OTC ADR of CXI) is more liquid than CXI, with tighter bid-ask spreads.
So I am not sure that management genuinely wants to spend more money on buybacks.
A quick note on M&A from the conf call. CEO mentioned that CURN had explored several acquisition opportunities but ultimately decided to pass on a few of them, suggesting a selective approach. The reasoning for passing on these deals wasn’t elaborated in detail. CEO stated that there are ongoing discussions with potential targets, although nothing concrete had been signed at the time of the call.
Also on buybacks, management emphasized that they are committed to continuing the buyback program, buying up to the daily maximum allowed as long as those shares are available in the market for purchase. One analyst asked why the buybacks weren’t highlighted more prominently in their press releases, suggesting that CURN could benefit from communicating the share repurchases more explicitly.
It probably doesn’t make a very good headline to highlight a buyback intensity of 1,300 shares/day.
Nevertheless, if they continue to buy back 24k shares a month and 288k shares /year, it is equivalent to a 4.5% buyback yield. Not bad either.
“One analyst asked why the buybacks weren’t highlighted more prominently in their press releases, suggesting that CURN could benefit from communicating the share repurchases more explicitly.”
If that’s your best suggestion to boost the stock price you should probably be fired ..
I am hoping for a few positives in the short to mid-term:
1. A large acquisition within the next 2 years
2. Reduction of losses at Exchange Bank of Canada (they won’t allow losses of $5M a year at EBC to continue – this also shows how profitable CXI really is)
3. Steady growth with the international banknotes, with or without EBC
Why is a large acquisition a good thing?
And since they don’t have much “excess cash”, how are they going to fund a large acquisition?
I think CURN has sufficient amount of excess capital for a large acquisition, from the call “But right now, we feel we have surplus capital, we have borrowing capacity” (this ‘borrowing capacity’ stood at $45m at the end of fiscal Q3).
While I would prefer the return of capital to shareholders instead of M&A, but as alluded in Lukas comment above, the company seems to be taking a disciplined approach to M&A. With Randolph owning 21% of the company, our interest should be well aligned. Also, a transformative value adding transaction might be just what the stock need to finally re-rate.
Canadian regulator FINTRAC has issued a $2.46m fine against CURN’s Exchange Bank of Canada for violations of anti-money laundering and counter-terrorist financing regulations. The penalty does not allege any actual involvement in money laundering or terrorist financing. CURN has filed an appeal against the decision.
https://www.ceifx.com/news/currency-exchange-international,-corp.-announces-exchange-bank-of-canada-appeal-of-fintrac’s-penalty
It seems that CURN did not a find a way to turn around Canadian operations. Strategic review has been launched for its Exchange Bank of Canada. Hopefully more light on this will be shed during release/call of annual results (expected by the end of January).
“Special Committee of independent directors is actively considering a range of strategic options for its wholly-owned subsidiary, Exchange Bank of Canada (“EBC”), a federally chartered non-deposit-taking Canadian Schedule I bank. The strategic review aims to explore opportunities to maximize long-term value for shareholders and focus the Company’s resources towards its profitable U.S. operations.”
https://www.ceifx.com/news/currency-exchange-international,-corp.-announces-strategic-review-of-exchange-bank-of-canada
Annual meeting planned on the 5th of February, as per Refinitiv
CURN reported annual results: on adjusted basis, i.e. excluding one-off items/non-cash charges for Canadian operations, it was business as usual, with payments business continuing to grow at a +20% clip. Exchange Bank of Canada operations are now under strategic review. Although management did not shed any further light on this during the call, my impression is that this business will be sold:
The company remains cheap, trading just slightly above its net working capital levels – $99m market cap vs $74m net working capital. Adjusted EBITDA during each of the last two fiscal years stood at $19m and adjusted net income at $10m. If it were not for the issues with the Canadian operations during FY2024, I am guessing the market would put more trust in this earnings power of the business and the stock would be materially higher.
Very limited buybacks at these levels are frustrating. The company only utilized half of its 5% repurchase authorisation for FY2024. A similar size buyback program is now in place again. These are at least partially limited by the volume on the Toronto stock exchange. When pressed by analyst on why the company does not leave Toronto stock exchange, the CEO Randolph Pinna was evasive:
PR https://www.ceifx.com/news/currency-exchange-international-announces-a-4%25-increase-in-revenue–for-the-year-ended-october-31,-2024-over-the-prior-year
MD&A https://www.sedarplus.ca/csa-party/records/document.html?id=4486c011c911d70beda506bd8d6df84917214f0557213592bf3eb9d0c7ae11c1
Annual report https://www.sedarplus.ca/csa-party/records/document.html?id=6de611997e2188f163b7685b3ecd01652a654524eee7f6885a9be1f99e0814a3
Conference call https://app.tikr.com/stock/transcript?cid=134721112&tid=225923657&e=1916874195&ts=3359207&ref=3no6ed
Why can’t CURN pay out significant dividends? Do they have some big plans for growth capex or acquisitions?
If they pay out 100% of their net income of US$10m, dividend yield will be 10% and shareholders don’t need to worry about low valuation rating or TSX trading liquidity any more.
And why do you think the $74m net working capital number is a relevant reference point for valuation? I think most of this cash/working capital is required/tied up for operations and can’t be liquidated/paid out.
I think net working capital is relevant in the same way in which the book value is relevant for some other types of businesses. As CURN is growing and generates high returns on net working capital, it should trade at material premium to NWC (above the current 1.3x). $10m in adjusted net income, is a 13.5% return on working capital.
As you suggest only part of this net working capital is likely to be excess capital, but not clear how much. Plural Partners previously pegged excess cash at $20m, which seems fine directionally, especially considering CURN generated around $25m in FCF last year alone (before adjusting for NWC move).
There are a number of ways the company could return this excess cash to shareholders. The ongoing, but slow, open market buybacks are one of these. Why is the management not returning more via dividends or a tender offer? Your guess is as good as mine. The previous argument was that this excess cash is better used for tuck-in M&A opportunities (this language was toned down on the latest call). Now we have the whole ECB strategic review / restructuring. So probably we again need to wait for new decisions with regards to excess cash allocation.
What made you think that potential M&A was toned down in the last call? I thought the last call was very explicit about chasing a large acquisition:
“We do still pursue — are pursuing a large banknote opportunity in the United States. While that is a very big transaction. Hence, it takes a lot of time, that is a focus of mine on a daily basis”
I got that mainly from the call’s Q&A where Randolph was asked about ‘some buckets of growth that you’re seeing for your business in the next few years’. And in his answer, acquisitions came more as an afterthought than an actual driver of growth. If I recall correctly in the previous calls M&A was stressed more as a growth driver. So that’s the reason I called it ‘toned down’. But maybe I am reading too much into this – the quote you indicate clearly points in the not-toned-down direction.
CURN has just announced a shut down of its Canadian operations. The decision comes 1.5 months into the strategic review. Given that no better options have surfaced, it seems the business was really beyond saving.
CURN will refocus on its US operations, which should be accretive to earnings since the Canadian business was losing money. That said, the company will take some one-time costs over the next six months as part of the exit. Even with those costs, CURN is expected to remain profitable during the period.
The company will host a conf. call today (starts 8:30AM EST) to provide more details.
https://www.ceifx.com/news/currency-exchange-international,-corp.-announces-strategic-decision-to-discontinue-operations-of-its-subsidiary,-exchange-bank-of-canada,-pursue-referral-agreements-with-appropriate-parties,-and-seek-discontinuance-from-the-bank-act
CURN’s conference call wasn’t exactly enlightening. Management did not give any of the important details regarding the EBC exit (e.g. costs of discontinuation, long-term savings, capital unlocked, etc.), but promised to update investors on the Q1 call next month.
One positive was a confirmation that the exit from EBC won’t directly impact the US business. EBC had zero connection to the US banknotes segment since it wasn’t even allowed to sell dollars to the US, only internationally.
In the near term, there will be some discontinuation costs, but by 2026, the business should be fully free of Canada’s losses. Last fiscal year (ending Oct ‘24), the Canadian segment lost $7.4m in EBITDA. Not all of that will translate to profit, but a lot of it should. There was some vague hinting at cross-segment expenses, such as executive salaries previously being allocated between the US and Canadian businesses. Probably the Canadian part will now have to be covered by the US’. Management called those “stranded costs”. Still, it’s probably reasonable to expect $5-$6m in long-term profit tailwind from this exit. That is very meaningful compared to $21m in US segment EBITDA last year.
Also, an uplisting to the US is apparently in consideration. So if management plays it right – i.e. smoothly closes EBC, uplists, and ramps up shareholder returns (given the improved profitability and some capital unlocked), the upside from current levels could be very substantial.
The real question, however, is management’s credibility. After years of hyping up EBC, probably burning a lot of money on it, and then abruptly shutting it down after getting hit with some AML related issues, it certainly doesn’t look very inspiring.
But then again… the stock just looks too cheap now. Given the profit tailwinds and higher focus from management on the US business, maybe we don’t need that much execution to do well from here. WIll be interesting to see specific updates from the company next month.
In Q1 earnings call, management has provided only very limited details on EBC exit. Further clarification on exit costs and etc was pushed to the next quarter. But they stressed multiple times, that the company is fully moving out of Canada and will focus on the US business only.
But what I found to be quite positive is that this exit from Canada will free up capital and Randolph Pinna has very clearly stated he is ‘in favor of’ increasing buyback pace with this freed up capital. But for the time being the repurchase activity will be very limited.
The waiting game continues.
Found Halvio Capital’s take on CURN:
“Thesis: Currency Exchange International (CXI) is undervalued with strong upside potential as it focuses on profitable US operations following the wind-down of its loss-making Canadian bank subsidiary.”
https://x.com/StockCompil/status/1905266710111826080/photo/1
EBC exit is ongoing. CURN entered into a referral agreement with Agility Forex, a Canadian foreign payments provider. EBC will refer select employees and their corporate payment clients to Agility Forex as part of winding down its Canadian operations.
https://finance.yahoo.com/news/currency-exchange-international-corp-announces-110000731.html
CURN upgraded listing from OTC pink sheets to OTCQX, which is supposedly the highest OTC tier.
I do not think this will have any meaningful effect in terms of trading liquidity or supposed investor accessibility to the stock, but still a step in a positive direction.
Fiscal Q2 results are out. This was largely a transitional quarter, with the main event being the formal classification of the Canadian EBC operations as discontinued. This is a major step forward in cleaning up the story and allowing the market to focus solely on the profitable U.S. business. Several highlights:
– The Canadian operations are now formally discontinued, with a full exit targeted by the end of fiscal 2025. Management estimates that ~$3m in after-tax “stranded costs” from EBC will be absorbed by the U.S. entity.
– Performance in the continuing U.S. operations was mixed. The Payments segment continued to grow, but the core Banknotes business saw revenues soften, which management attributed to tapering travel activity.
– Management continues to buy back shares, though at a pretty slow pace. The current NCIB, effective from December 2, 2024, to December 1, 2025, authorizes the company to repurchase up to 316,646 common shares (5% of outstanding). During the first half, the company repurchased 80,500 shares for ~$1.23m (~$15.32/share, right about where the stock trades currently).
Not much to comment on from CURN’s conference call. Most of the Q&A centered around clarification on the $3m in stranded costs being transferred from EBC to CURN (mainly items like management salaries that were previously shared, but now will be fully borne by CURN). The key takeaway is that these costs were not yet included in this quarter’s continuing operations financials. So to get a true picture of pro-forma profitability, these costs still need to be deducted:
That said, stranded costs should be more than offset by the elimination of EBC’s unprofitable operations. In the last fiscal year (ending October 2024), EBC lost $7.4m in EBITDA.
Working capital drop (from $73m last quarter to $60m this quarter) was primarily due to the discontinuation and separation of EBC. Management noted there is “a potential of repatriating some of our capital from EBC over to CXI.”
They also reiterated that M&A remains a strategic priority, though said there is currently “nothing to announce.”
NCIB authorization increased from 316,646 to 377,000 shares. And I was starting to worry they weren’t serious about returning capital (lol). Maybe with the EBC wind-down freeing up cash and cleaning up the story, it’s time they finally did something more meaningful.
The current constraint is the limited trading liquidity on TSX, not the NCIB limit. If in the future they can move its primary listing to US and upgrade from OTC to US main exchanges, trade liquidity could be improved.
What stops them from doing a tender offer?
Unwillingness, the same that stops them from paying out a large special dividend.
CURN Q3 results are out. A pretty standard quarter overall, with growth seen in both banknotes and payments businesses in the US. On a continuing basis, EBITDA grew by 4%. However, if you compare it to last year’s Q3 numbers (with EBC still included), EBITDA is up 19% with margins improving from 28% to 38%. So the cost benefits of ECB exit are already evident (the exit is still expected to be completed by the end of October.
Other interesting tidbits from the earnings:
– CURN will exit its Canadian headquarters once the lease expires in October and will relocate to the US. Management is weighing whether to cancel the Canadian listing as well and potentially upgrade from OTC to Nasdaq. On the call, one shareholder suggested dropping Canadian filings but staying on OTC unless the company grows large enough to join the Russell 2000, in which case Nasdaq would make sense. Management said this option is also on their radar.
– One shareholder asked about the $12.8m reported as “cash included in assets held for distribution to shareholders.” That cash was freed up from the ongoing EBC exit. Management said the final number may change once the exit is complete, but confirmed it is considering distributing the cash to shareholders. Here’s the quote:
– Buybacks seem to be continuing at a maximum allowed pace (25% of the average daily volume) with company repurchasing 1k shares every day. And on some days there were block purchases of 25k shares.
– Almost nothing was said about potential M&A this time, except the usual line that CURN continues to evaluate opportunities.
CURN has announced a poison pill, which effectively limits any shareholder’s stake to below 20%. Management noted that the company has not received any formal or pending acquisition offer. So it’s unclear what prompted the poison pill, but it’s possible that an activist has entered the shareholder register. Interestingly, the stake threshold was also set fairly high.
https://www.sedarplus.ca/csa-party/records/document.html?id=89c899d61066fe120f8f24d64f4d6392c78a654fc5c5c3bf044e5e0fdf5c0666
CURN has announced another buyback authorization, this time for 10% of outstanding shares. A nice increase from the previous 5% authorization, which has just expired and was fully exhausted.
https://www.sedarplus.ca/csa-party/records/document.html?id=ac698581aa4a719fbeb7d8bed6e2c2e0a213933ca9243e7bd84292ee8996b73f
I believe they actually reduced the authorization from 377k shares in the previous program (as amended in Aug 2025) to 360k shares in the new one, likely forced by the decreasing “public float”.
They simply changed how it was framed in the press release, from 5% of outstanding shares last year to 10% of public float this year. The target has always been 10% of public float since the Aug 2025 amendment to the program.
In any case, the amount of buyback between Dec 2024 to Nov 2025 was surprisingly large at 324k. It seems that they managed to use the once per week “block purchase” allowance to circumvent the 1k shares per trading day limit.
If they can persistently reduce public float by 10% each year, this is a very interesting situation.
Thanks for the correction, I somehow rushed through the “public float” phrasing.
SEDI filings show that CURN buybacks have continued at the usual rate during November, with the company repurchasing shares on almost every trading day at a maximum limit (unfortunately that limit is only 1000 shares/day).
In December CURN made one larger stock repurchase (of 100k shares) on top daily buybacks in the open market.
When and why is this idea closed?
Not closed and still active. It was accidentally moved to inactive cases at the end of the year, now restored.
CURN released fiscal Q4 results (ending October 31) yesterday. The business continues grow, with the payments segment showing particularly strong performance (+31% revenue YoY). DTC banknotes grew 8%, while wholesale banknotes revenues were flat due to a government shutdown that impacted some airports and a slowdown in inbound travel.
The most interesting highlight was probably that for the first time ever (unless I’m mistaken), management broke down CURN’s working capital situation. Apparently, optimal cash inventory for the banknotes business runs at $50-$70m. The excess cash currently sits at $25m and is being used for investments:
That $25m of excess cash should be deducted in EV calculations. This results in EV of $75m for a business that has generated $23m of EBITDA during the last fiscal year. The company remains very cheap.
However, management is in no hurry to return all that excess cash to shareholders. Albeit they did accelerate buybacks as of late – 170k shares (nearly 5% of shares outstanding) have been purchased since the new buyback authorization at the end of November. They have executed nearly half of the entire program over the last two months. So that’s encouraging.
The disappointing news is that the previously hinted potential cash distribution or tender offer (SIB) is off the table for now. Management wants to keep a big chunk of cash held in reserve for future M&A, as the deals they’re currently eyeing come at either prices “too high” for their liking or are very complex to execute.
Regarding the Nasdaq uplisting, that’s also getting delayed. Management said it can be expected no sooner than the next year (2027), as they intend to focus on exiting EBC first and printing some clean quarters before making the move.
For now, I continue to like CURN, mostly due to low valuation and continued growth in the business. But it’s definitely frustrating to watch management delay obvious catalysts instead of pulling the triggers.
Other highlights:
– On a continuing basis, revenue was up 8%, EBITDA +4%, and net income +32% YoY in Q4. If you compare results with last year’s Q4 with EBC still included, net income went from negative $2.8m to positive $3.3m.
– Payments growth was especially strong at 31% YoY in Q4, supported by client growth and a 40% increase in trading volumes. This segment now comprises 17% of total CURN revenues. Management noted this pace of growth is not only sustainable, but could increase.
– EBC fully ceased operations as of October last year. As previously guided, EBC left some stranded costs for CURN. Those were originally estimated at $3m annually, but were revised down to $2.7m. As of Q4, most of those costs have been already transferred to CURN.
– 312k shares were repurchased in FY25 at an average price of $15.24/share. The pace has increased with 170k shares repurchased over the last two months.
– Around $5m of cash remains trapped in the EBC. The company should get it later this year, after the EBC is fully liquidated (expected in fiscal Q2 ending in April).
MD&A >> https://www.sedarplus.ca/csa-party/records/document.html?id=e48b7d6ee138822f36dfa31d9205b6d2db9a7c31d38dbba2820c2c71ff79c3b4
Conf. call >> https://app.tikr.com/stock/transcript?cid=134721112&tid=225923657&e=1978219834&ts=3635494&ref=3no6ed
CURN announced an auditor switch from Canadian-based Doane Grant Thornton to US-based BDO USA. This seems to align with the exit from Canadian operations and the targeted 2027 Nasdaq uplisting discussed on the recent earnings call.
CURN released fiscal Q1’26 results (ending January 31). It’s a seasonally slow quarter for the Banknotes business, but any decline was offset by Payments business, which seems to be firing on all cylinders and delivered 49% growth YoY. Excess cash also increased to $34m from $25m at the end of the previous quarter. CURN repurchased 151,000 shares for $2.5m during the quarter.
The company remains cheap. At the current $119m market cap and with $34m excess cash, the EV sits at roughly $85m. That compares to $24m in TTM EBITDA, so the stock is trading at just ~3.5x EV/EBITDA. If you also back out the $4.7m in EBC net assets slated for distribution back to CURN, the multiple compresses even further (these funds will be distributed after the final regulatory sign-off on EBC closure).
Despite the growing excess cash pile, management seems committed to acquisitions over larger capital return to shareholders. Not ideal for my liking, but management seems to be taking a really disciplined approach to any M&A, which increases the chances of any transaction being accretive. From the call: “Our focus has been on banknotes, and we do have the cash available to make a good transaction that will be accretive to the business”.
Call: https://app.tikr.com/stock/transcript?cid=134721112&tid=225923657&e=1988514706&ts=3677759&ref=3no6ed
worth noting that profitability from the payments segment dropped like a brick due to bank service charges being attributed to the correct segment now. Lower profitability than last year despite the 49% growth in revenue, and management was a bit shifty about those charges during the call.
It’s a cheap company, but every quarter a new issue seems to pop up.
CURN released fiscal Q2’26 results (ending April). The business trajectory remained similar to last quarter. The Banknotes segment was flat, while Payments revenue accelerated to 73% YoY driven by higher volumes from existing and newly added customers. Payments segment already generates 27% of the company’s revenue (up from 17% in the same period last year). Total revenue grew 13%, while profitability was more or less flat. Buybacks were softer, with only 60k shares repurchased during the quarter. EBC was finally fully exited last month.
Excess cash at the end of April stood at $30.3m. At the current $106m market cap, that results in a $76m EV against $22m in TTM EBITDA. The company remains very cheap.
There is nothing new to note on the capital allocation front so far. I will provide an update later if the conference call reveals anything interesting.