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Artko Capital - Currency Exchange Intl.:  Notching Up A ~56% Return In Volatile, Underperforming Markets

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Mosaic postulation of world currencies

FrankvandenBergh

The pursuing conception was excerpted from this money letter.


Currency Exchange International (OTCPK:CURN)

CURN continued to beryllium our champion performer successful 2022 notching up a ~56% return successful nan look of volatile underperforming markets, and up different 18% successful 2023. Last twelvemonth we wrote to you astir our guardant estimates for this company:

“We judge by 2024-2025 clip period, pinch nan return of nan Banknote revenues to higher than pre Covid levels of $40-45mm and continued maturation successful Payments revenues to $15mm to $25mm, nan institution tin execute a gross tally complaint of betwixt $60mm to $70mm. While we don’t expect nan costs guidelines to enactment astatine $30mm, arsenic we mentioned this is simply a important operating leverage opportunity and we expect this $60mm marketplace cap/$10mm Enterprise Value institution to make $15-$20mm successful Free Cash Flow wrong nan adjacent 24 to 36 months”

We are excited to stock pinch you, that while we expected these results a fewer years retired nan institution was capable to execute 117% gross maturation successful 2022 to $66mm, which is adjacent to 60% complete its 2019, pre-Covid, peak. How did we get there? The biggest astonishment for america came successful nan beardown capacity of its Banknotes conception increasing 136% to $53.9mm. In nan past, this was a sleepy segment, managing non-airport-based 30+ overseas speech kiosks successful nan US and Canada and generating $42mm successful gross successful 2019.

With nan Covid-related North American bankruptcy exit of its biggest competitor, TravelX, CURN was capable to slow return complete airdrome locations arsenic a franchisor, i.e. nary superior commitments; helped by nan return of recreation arsenic good arsenic wide ostentation some successful speech dispersed and mean transaction size. We judge these dynamics arsenic good arsenic a adjacent monopoly successful North America, and room for branch description will proceed to substance double-digit maturation for nan unit information of nan Banknotes conception successful nan intermediate future.

The different information of nan Banknotes conception is nan wholesale information which was mostly nonexistent successful 2019. However, successful nan past 2 years, nan institution has been approved by nan Federal Reserve nether its Foreign Bank International Cash Services (FBICS) program, aft a lengthy owed diligence process, and is now 1 of 2 companies successful nan US that tin supply world banks pinch US currency. In different words, if you are opportunity UBS and you request $25mm of US rate CURN will happily supply this service.

This business apt provided mid-single digit millions successful gross successful 2022, up from zero successful 2019, and we judge tin scope tens of millions of dollars successful gross successful nan intermediate future. The much absorbing mobility 1 has to inquire is if CURN is equilibrium expanse constrained i.e., will it request much superior to turn this business? While location are transactions successful nan $50mm to $100mm size, which requires a bigger equilibrium expanse than CURN presently has, those are fewer and acold betwixt and astir summons sizes are successful nan debased tens of millions. In different words, CURN tin proceed to turn this conception without important superior additions different than earthy moving superior growth.

In nan Payments segment, besides nonexistent successful 2019, nan institution grew 61% to $12.5mm arsenic it continued to turn its Canadian and US existing relationships. The company’s proprietary package CXIFX helped turn transaction volumes by 38% and transaction magnitude by 47% successful 2022, pinch much profitable transactions successful nan past twelvemonth driving gross maturation up of volume.

One of nan things we person talked astir substantially successful our letters successful nan past is our fondness for uncovering a business pinch important operating leverage, i.e. wherever gross maturation is substantially up of disbursal growth. CURN is simply a premier illustration of this strategy arsenic it grew its revenues by $35mm successful 2022, while expenses grew by only $17mm resulting successful a 50%+ publication separator and ~ $19mm successful operating profit. Pretty singular that this institution has been capable to execute these numbers 2 years up of our original projections.

So wherever do we spell from here? We judge that successful nan intermediate future, nan institution tin proceed to turn revenues astatine 20%+ maturation rates pinch nan resulting maturation successful profits astatine 30%+. This is simply a well-run company, pinch a well-respected and incentivized laminitis CEO, a caller knowledgeable CFO, and a $100mm+ marketplace headdress which should gain complete $25mm successful operating income successful 2023. More precocious CURN’s direct, backstage equity owned competitor, Moneycorp was put up for waste by its ownership pinch asking multiples astatine 12-13x EBITDA (note, we are utilizing operating income arsenic our valuation basis).

If this transaction is successful we expect this $120mm marketplace headdress company, pinch astir $40mm successful excess rate (and complete $80mm successful full cash), to re-rate successful nan $40 to $50 per stock range. However, we proceed to show nan company’s superior allocation plans arsenic we judge its conservatism and deficiency of a clear plan, different than imaginable acquisitions, whitethorn inhibit its near-term banal value appreciation. To that end, we person engaged successful important friends discussions pinch guidance connected nan company’s superior allocation plans and shareholder communication.


Legal Disclosure

The Partnership’s capacity is based connected operations during a play of wide marketplace maturation and bonzer marketplace volatility during portion of nan period, and is not needfully suggestive of results nan Partnership whitethorn execute successful nan future. In addition, nan results are based connected nan periods arsenic a whole, but results for individual months aliases quarters wrong each play person been much favorable aliases little favorable than nan average, arsenic nan lawsuit whitethorn be. The foregoing information person been prepared by nan General Partner and person not been compiled, reviewed aliases audited by an independent accountant and non-year extremity results are taxable to adjustment.

The results portrayed are for an investor since inception successful nan Partnership and nan results bespeak nan reinvestment of dividends and different net and nan conclusion of costs, nan guidance fees charged to nan Partnership and a pro forma simplification of nan General Partner’s typical profit allocation, if applicable. The General Partner believes that nan comparison of Partnership capacity to immoderate azygous marketplace scale is inappropriate. The Partnership’s portfolio whitethorn incorporate options and different derivative securities, fixed income investments, whitethorn see short income of securities and separator trading and is not arsenic diversified arsenic nan indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, inferior and financial companies and is mostly typical of nan ample capitalization US banal market. The Russell 2000 Index is comprised of nan smallest 2000 companies successful nan Russell 3000 Index and is mostly typical of nan mini capitalization U.S. banal market. The Russell Microcap Index is comprised of nan smallest 1,000 securities successful nan Russell 2000 Index positive nan adjacent 1,000 securities (traded connected nationalist exchanges). The Russell Microcap is mostly typical of nan microcap conception of nan U.S. banal market. All of nan indices are unmanaged, marketplace weighted and bespeak nan reinvestment of dividends. Due to nan differences among nan Partnership’s portfolio and nan capacity of nan equity marketplace indices shown above, however, nan General Partner cautions imaginable investors that nary specified scale is straight comparable to nan finance strategy of nan Partnership.

While nan General Partner believes that to day nan Partnership has been managed pinch an finance accuracy and methodology akin to that described successful nan Partnership’s Offering Circular and to that which will beryllium utilized to negociate nan Partnership successful nan future, early investments will beryllium made nether different economical conditions and successful different securities. Further, nan capacity discussed herein does not bespeak nan General Partner’s capacity successful each different economical cycles. It should not beryllium assumed that investors will acquisition returns successful nan future, if any, comparable to those discussed above. The accusation fixed supra is historical and should not beryllium taken arsenic immoderate denotation of early performance. It should not beryllium assumed that recommendations made successful nan early will beryllium profitable, aliases will equal, nan capacity of nan securities discussed successful this material. Upon request, nan General Partner will supply to you a database of each nan recommendations made by it wrong nan past year.

This archive is not intended arsenic and does not represent an connection to waste immoderate securities to immoderate personification aliases a inducement of immoderate personification of immoderate connection to acquisition immoderate securities. Such an connection aliases inducement tin only beryllium made by nan confidential Offering Circular of nan Partnership. This accusation omits astir of nan accusation worldly to a determination whether to put successful nan Partnership. No personification should trust connected immoderate accusation successful this document, but should trust exclusively connected nan Offering Circular successful considering whether to put successful nan Partnership.


Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

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Single banal ideas excerpted from money letters published by Seeking Alpha.

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