I thought I should write down my thoughts about Currency Exchange International ($CXI.TO or $CURN on the OTC).

As usual, my timing was wrong. Their Q2 was good, but the banknotes segment growth was underwhelming, and the market reacted negatively. I’m already down ~15%.

What I like

I like that:

  • their biggest competitor in the banknotes segment (Travelex) completely exited North America

  • they are small enough to provide personalized services to corporations but big enough to have operating leverage

  • the CEO, Randolph W. Pinna, owns 21.5% of the company

  • the CEO has 30 years of experience in the currency exchange industry

  • they have built an in-house proprietary software for currency exchange services, and they have integrated it with Fiserv and Jack Henry

  • there are barriers to entry in this business because of compliance requirements

  • I imagine that there are switching costs or at least some customer stickiness in the wholesale currency exchange and payments businesses

  • they are aggressively growing their payments business which now represents 25% of revenues, vs 5% in 2018

  • their revenue from the payments business was very resilient during the pandemic

  • the balance sheet is extra solid, they have a lot of cash sitting in inventory for day-to-day operations in their currency exchange business

  • their Exchange Bank of Canada (nice name!) has access to the Federal Reserve US Dollar Currency Services Program (FBICS)

What I don’t like

I don’t like that:

  • their banknotes (currency exchange) business is not recession-proof, because travel and tourism are discretionary activities

  • they have a lot of cash that’s just sitting there doing nothing (I think) on the balance sheet

  • they seem to be not super aggressive, they’re not growing their locations as fast as they could, but maybe this is the correct (cautious) approach

  • their return on equity has not been amazing so far

What I don’t know

I’d like to get confirmation on:

  • how sticky is their international payments business and who are their competitors?

  • same question for the wholesale banknotes business

  • other than ~$1M in savings from the Federal Reserve FBICS program, are there other advantages?

  • are there any barriers to entry in the retail currency exchange business?

  • are they positioned to benefit from a transition to CBDC (Central Bank Digital Currency)?

  • how big can they get? What is their TAM?

https://ragnarisapirate.blogspot.com/2021/07/currency-exchange-international-cxicurn.html

https://www.valueinvestorsclub.com/idea/CURRENCY_EXCHANGE_INTL_CORP/4342843670#description

https://www.greystonevalue.com/wp-content/uploads/2022/04/Greystone-Capital-Q1-2022-Letter.pdf

https://drive.google.com/file/d/1aIVCMs_hsK-wtnuogEsXP4iVLwEEYSt9/view?usp=sharing

https://www.youtube.com/watch?v=1loVaezA5Ho


Until next time, stay cool & stay invested!