The e-banking and international payments group handles multi-currency payments, and reckons that with its online-only peer-to-peer approach it can provide very competitive foreign exchange services — and Wednesday’s first-half results lend support to that.

Turnover rose 26% to £434m and revenue grew by 33% to £6.1m, with gross profit up 37% to £4.8m and the firm’s gross margin picking up to 1.12% of turnover from 1.03%.

The company revealed a maiden half-year pre-tax profit of a modest £150k, but that’s a turnaround from a loss of £888k the year before, and analysts are predicting positive earnings per share (EPS) for the full year of around 0.6p.

Pivot point

For a first year of profit, that’s hard to quantify meaningfully, but a massive rise in EPS to 4.4p forecast for 2018 would put FairFX’s 70p shares on a P/E of 16. I see that as modest for a company at such an early stage of profitability, with growth stocks frequently commanding high multiples in their first few years.

So far in the second half, we’ve seen a £26.2m fundraising to acquire Spectrum Financial Group, which should accelerate the company’s “stated strategy of disrupting the SME banking space.“

Another 35,410 retail customers were added, taking the total up to 623,602, and corporate card turnover soared by 95% to £59m.

In much the same way as the challenger banks have a very large sector to grow into, I can see plenty of opportunity for FairFX to extend its foothold and there could be some serious growth ahead.

Blue, blue sky

Another I’m seriously intrigued by is Destiny Pharma (LSE: DEST), which also released first-half results Wednesday.

There’s very little by way of comparison, as the company only came to market with an AIM flotation on 4 September, but the “clinical stage biotechnology company focused on the development of novel anti-microbial drugs, which address the global problem of anti-microbial resistance” has launched itself into a field that could easily prove very lucrative.

We’re looking at no profits yet, but a £0.92m loss for the period, and the firm reported £0.87m in cash on the books at 30 June. But that’s of no real significance now, as Destiny has started the new public phase of its life based on a £15.3m fundraising which helped launch its IPO.

Chief executive Neil Clark said Destiny is “now a well-funded drug development company” and is “focused fully on delivering its Phase IIb clinical study with its lead asset, XF-73, and progressing its earlier pipeline over the next two years.“

Tempting and risky

I’m happy with the firm’s liquidity for a few more years at least, and any investment decision is now dominated by the potential for the novel drugs that are under development. We don’t know how long it will be before we could be in a post-antibiotic world, but drug-resistant bugs are challenging our best treatments at an accelerating rate.

The big risk for companies like this is that their big hopes can come crashing down if later-stage clinical trials fail, and that’s certainly happened before. But the potential must be huge if things come good. 

Destiny Pharma is one I could risk a small amount of money on.

The post 2 ‘hidden’ small-cap stocks that could make you stinking rich appeared first on The Twelfth Magpie.

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

Surprise results

Reporting on Wednesday was low cost multi-currency payments service FairFX (LSE: FFX). The company released a half-year trading statement which was better than expectations. It achieved its first interim net profit since IPO. Turnover for the first half of the year was up 25.8% year on year, with the company experiencing broad-based growth. Gross margin moved higher thanks to a more profitable business mix, while the cost benefits of rationalising the supply chain led to a more profitable period.

Total turnover from pre-paid cards and international payments increased 23% and 25% respectively. The company’s strategy on the retail card and travel money side is to improve the user experience. Thus far, it seems to be making progress in this regard, while campaigns to increase customer retention and cross-selling opportunities have been launched.

Looking ahead, FairFX is expected to report a net profit in the current year. It is forecast to deliver growth in earnings of over 600% next year, which indicates that it is moving in the right direction. This puts it on a forward price-to-earnings (P/E) ratio of 14, which suggests it offers excellent value for money given its long-term growth potential.

Potent combination

Also offering an attractive outlook for investors within the payment services sector is Safecharge (LSE: SCH). It is forecast to post a rise in earnings of 17% in the current year, followed by further growth of 14% next year. Despite this, it trades on a PEG ratio of just one, which indicates that its shares could deliver outperformance of the wider index over the medium term.

As well as growth potential, Safecharge also offers enticing income prospects. They could prove to be a catalyst on its valuation, since inflation is forecast to move higher than 3% over the coming months. As such, stocks offering high yields may become more popular among investors. With the company currently yielding 5.2% from a dividend which is expected to increase by 15% next year, it offers significantly better income prospects than many of its industry and index peers.

Of course, management changes at the company could increase its risk profile. However, with a sound strategy and a replacement CFO having been announced, it looks set to deliver on its growth potential. This could make it a worthwhile and profitable purchase for the long term.

The post Can these small-cap shares provide a strong source of growth? appeared first on The Twelfth Magpie.

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

Today I’m going to look at a fintech stock whose share price has doubled in six months. Should investors look for a long-term growth focus on businesses like these, or do big banks such as Barclays (LSE: BARC) still have a role to play in growth-oriented portfolios?

Profits could explode

In its 2016 results statement, payment services provider FairFX Group (LSE: FFX) describes the mainstream foreign exchange sector as “low-tech” with “poor transparency”.

By contrast, FairFX says that by operating online only and using peer-to-peer (P2P) technology, it can provide low-cost and competitive foreign exchange services for the UK market. The group’s revenue rose by 27.9% to £10.2m in 2016, while gross profit was 31.2% higher at £7.5m.

Although FairFX still reported an operating loss of £1.4m last year, this was 58% less than the £3.4m loss a year earlier. Encouragingly, the group reported a net profit for the final quarter of 2016, although this feat wasn’t repeated in the first quarter of 2017.

This could work

FairFX appears to be building a strong brand. Customer numbers rose by 80,802 to 588,192 last year, and a further 15,070 new customers joined the group during the opening quarter this year.

Although the group didn’t manage to breakeven last year, I was encouraged to see administrative expenses fell from £9.1m to £8.9m in 2016. That’s impressive, because it suggests that the bulk of the group’s costs are fixed, even during rapid expansion.

This has the potential to create an effect known as operational gearing, where a company’s profits rise very quickly once its fixed costs are covered.

Is the price right?

FairFX is targeting a net profit for 2017. Based on the firm’s 2016 figures, I estimate that if FairFX can deliver another 28% rise in revenue this time, it could generate a pre-tax profit of about £850,000. That’s roughly equivalent to a P/E of 70, depending on tax costs.

That looks quite expensive to me. Although I think this is a decent business, I’m not convinced that now is the right time to buy. I’m also concerned that FairFX could face tougher competition as it gets larger. So for now, I’d hold.

Forget the past

Investors traditionally chose banking stocks for their prudent management and reliable returns. It’s harder to make that argument since the financial crisis, but I think it’s time to look forward, not back.

Banks have spent the last eight years repairing and strengthening their balance sheets. Most legacy issues are out in the open and many have been resolved. In my view, banking stocks are starting to look very tempting.

My pick is Barclays. The bank’s stock currently trades at a 25% discount to its tangible net asset value of 290p. Profits are rising and a P/E of 10 is forecast for 2017, falling to 8.8 for 2018. The dividend yield is expected to rise from 1.5% in 2017 to 3.9% in 2018.

I believe a real recovery is underway. In my view, Barclays’ shares could be worth as much as 40% more than their current price so I continue to rate its stock as a buy.

The post Is this small-cap star a better banking buy than Barclays plc? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Barclays. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In the money

Money transfer and currency card specialist FairFX (LSE: FFX) has continued its heady ascent of recent weeks with a 3% gain in Friday trade, the business greeting the market with robust full-year numbers for 2015.

FairFX announced that revenues leapt 35.7% higher last year, to £7.4m, although heavy marketing spend drove the firm into a pre-tax loss of £3.4m. The money play added 103,338 retail customers last year, taking the total to more than half a million.

Reassuringly FairFX added that trading during the first quarter of 2016 had been in line with expectations, and I believe the firm’s huge investment in marketing and technology — not to mention strategic focus on the retail card market — should keep delivering the goods.

FairFX is not expected to flip into the black this year, however, given that its hot growth story is still in the early stages. But the money play is expected to report its first earnings of 1.1p per share in 2017, and despite a heady P/E rating of 30.1 times I reckon FairFX could prove a lucrative selection for long-term investors.

Oilie gushing higher

Oil explorer Circle Oil (LSE: COP) also enjoyed a firm bump skywards in end-of-week trade, an 18% advance putting FairFX firmly in the shade.

Investor appetite shot higher following news that Circle Oil had agreed to suspend repayments to the International Finance Corporation under its reserve based lending facility. The payment deadline has now been pushed back to May 13th.

The stunning rise of Brent crude to four-month highs above $44 per barrel has no doubt boosted investor hopes that Circle Oil may now be past the worst.

I am not so convinced, however, and believe Circle Oil could find itself on the back foot again should ‘black gold’ prices retrace and the oil play’s fragile balance sheet find itself under the microscope again.

In a hole?

Like Circle Oil, I reckon Sirius Minerals (LSE: SXX) is also at the mercy of a colossal share price correction, thanks to the hulking supply imbalances hanging over commodity markets.

The potash producer was recently dealing 2% higher from Tuesday’s close, however, Sirius Minerals settling in recent weeks following heavy stock price volatility.

Shares shot to their highest in almost a year in March following a definitive feasibility study at its North Yorkshire polyhalite project, an asset that Sirius Minerals believes will transform the business into “a world leader in the fertilizer industry.” But news that the firm will need $3.56bn to start digging brought shares back to Earth with a bang.

While Sirius Minerals throws up plenty of potential, the firm remains a high-risk stock despite the exceptional results of recent drilling work. The digger still has to raise finance for its asset in the North, while subdued potash values puts a further fly in the ointment. And of course the unpredictable nature of minerals production also makes the Sirius Minerals a gamble too far, in my opinion.

The post Should You Buy Sirius Minerals PLC, Fairfx Group PLC & Circle Oil Plc Today? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.