Hits: 31

15 July 2020

Alpha FX- Trading Update

Share Price 690p

Mkt Cap £276m

Conflict Disclosure: I Hold 

  • Update Revenue is up 16% in the 6 months to June to £18m. Number of clients increased by 28 to 671. The Norwegian fish farmer that defaulted on margin is up to date with payments, but a provision of £2m will be required in H1. Payment Solutions grew in both quarters while the Institutional business grew 21%. Canada and the new Netherlands office also make good progress. Outlook is cautiously optimistic. 
  • Estimates Forecasts currently anticipate 5% revenue growth which is £1.7m which is too low given 16% revenue growth in H1. EBITDA estimates are for flat EBITDA. If the full year revenues grew 16% this would be £5.7m extra revenue while the new office and extra £2m provision may eat into this it looks likely that EBITDA may grow.
  • Valuation PE 27X Yield 0.6%. Argentex trades at 14X
  • Conclusion The shares have been re rated downwards but remain expensive. The company’s strong sales culture is likely to continue the growth while we have to believe the company is no longer providing margin at the wrong price.

7 April 2020

Alpha FX – Placing
Share Price 695p
Mkt Cap £258m
Conflict Disclosure: I Hold

Update £20m fund raise by ABB at 680p/share. Post the raise this will leave the company with £35m free cash on its balance sheet. Fund raise is to help the company acquire new clients and continue investment in Alpha Payment Solutions, Netherlands and Canada.

Valuation 25X Dec 19 EPS which is expected to be similar in 2020

Conclusion In my view Alpha FX has a strong sales culture but I am concerned that the other factor responsible for the fast growth is providing forwards at too low a margin price which is why the company needs capital. This fund raise would appear to endorse that concern. It is easy to grow providing risk capital at the wrong price.

30 March 2020

A picture containing drawing

Description automatically generated

Alpha FX – COVID 19 Update 

Share Price 940p

Mkt Cap £349m

Conflict Disclosure: I Hold

  • Update – Q1 to 31 March is reported to be strong. Reduction in global trade leads board to believe that revenue and earnings may be close to 2019.  223 clients have seen forward contract values deviate significantly in fair value meaning extra margin is required from clients. One client needs more time to pay the £30.2m obligation to the group. The company is considering whether to increase the bad debt reserve. This is a global exporter of food produce and the c.31% fall in the Norwegian Krone has led to the cancellation of the cotracts and a resulting debt to Alpha. 70 of Alpha trade was forward order book in 2019. Dividend cancelled
  • Balance Sheet – NAV £57.5m which consisted of £74m cash and net trade payables of £23m.
  • Valuation Last year’s EPS was 26.9p. 35X
  • Conclusion The counterparty risk the company is taking is likely to be news to the market which will result in a significant derating.

18 March 2020

A picture containing clipart

Description automatically generated

Alpha FX – FY Results

Share Price 870p

Mkt Cap £323m

Conflict Disclosure: I Hold

  • Results Revenue up 51% to £35.3m. Underlying operating profit up 51% to £14.7m. Reported operating profit £13.7m. EPS up 33% to 30.1p. Client numbers grew 34%, revenue per client up 12% and staff numbers up 51% to 124. Canada is expected to report a profit in Q1 2020 and an Amsterdam office is now planned. Net cash is £38.6m. The company reports limited impact from COVID 19 so far and since December Alpha reports trading in line with expectations.
  • Estimates Results are in line with expectation upgraded on the pre close update. Current year forecasts are for 20% PBT growth.
  • Valuation PE 24X for 2020 and FCF yield 4.1%. Div yield 1%.
  • Conclusion The shares are down 37% from their highs. At this young age of development this looks like an expensive but scalable cash generating machine. One for the long term.

8 January 2020

A picture containing music

Description automatically generated

Alpha FX  – Trading Update 

Share Price 1215p

Mkt Cap £451m

Conflict Disclosure: I Hold

  • Update: Since the last update on 17 October trading has continued to be strong. Revenues are expected to exceed £35m and margins are also slightly ahead of expectations. The company says it has increased front office headcount from 51 to 74 and the new hires are nit yet contributing materially to revenue and consequently future revenue growth is anticipated from the new cohort of front office hires.
  • Estimates Forecasts anticipate £33.6m revenue for the year to Dec 2019 so revenue looks to be 4% ahead. Perhaps with margins being higher than the anticipated 40% this may be a 10% beat. With front office headcount up 45% over the year the 21% increase in PBT during 2020 may be too low too.
  • Culture The company has an focussed, energetic, dedicated management that is the reason the stock is highly rated
  • Valuation PE 43X yield 0.6%.
  • Conclusion The rating reflects the fact that this company can become a large company.  The rating is perhaps discounting a doubling of profits which will take a few years but this high quality situation is one to own and tuck away.

17 October 2019

A picture containing vector graphics

Description automatically generated

Alpha FX – Trading Update 

Share Price 850p

Mkt cap £316m

Conflict Disclosure: I Hold

  • Update Strong Trading derived from the UK corporate market while newly launched operations in Canada and Alpha Pay also continue to improve revenues. Earnings are expected to be ahead of current market expectations.
  • Estimates Forecasts currently anticipate 36% revenue growth for the year when the company hasn’t achieved such a low rate since coming to market. With 60% revenue growth achieved in H1 this was very predictable. The wording of the statement suggest a modest upgrade, so I imagine there may still be more to come around the December year end.
  • Valuation The PER of 32.6 is high because the earnings forecasts are wrong. Going out to 2020 the shares are on 27X forecast EPS.  If 60% revenue growth is maintained the rating could turn out to be significantly lower.
  • Conclusion Argentex has already had one upgrade since its June IPO. Alpha FX may have more this year.  This is a large and liquid market and as long as speed wobbles can be avoided there is a lot to go for.  Note gives further detail.

10 July 2019

A picture containing clipart

Description automatically generated

Alpha FX – Trading Statement  

Share Price 725p

Mkt Cap £269m

Conflict Disclosure: I Hold

  • Statement Revenue for H1 expected to be £15.6m, a 60% year on year increase.  Driven by Core UK corporate as well as Europe revenues accelerating from the London based team. Canada is yet to contribute meaningful revenues but the company is confident. Alpha pay, launched in Dec is “well received”. The office move will increase costs but earnings are expected to be “ahead of expectations”
  • Estimates Full year revenue expectations are £29.2m. 53% of this has been delivered in h1 and with a 60% year on year growth rate there is considerable scope for upgrades.
  • Valuation With a PER of 33.8X and yield of 0.9% the price is anticipating upgrades.
  • Conclusion The ROE is 21% and I the company’s embedded and recurring revenues which are growing fast makes me suspect this is a company that could sustain a high rating as successive upgrades are delivered. The shares have come back since Argetex came to market at a far lower valuation but Argentex is “advisory” forex.

20 March 2019

Alpha FX – FY Results 

Share Price 640p

Mkt Cap £234m

  • Results Revenue up 73% to £23.5m. Underlying operating profit up 48% to £10m and underlying EPS up 30% to 22.7p. Client numbers up 55% to 482. During the year the company launched in Canada, launched an international payment platform and launched an institutional division. Outlook says Q1 has started well. Net cash is £36m and the statement refers to numerous investment opportunities.
  • Estimates Results are in line with upgraded estimates. The forecast 6% EPS growth in 2019 looks far too modest.
  • Valuation PER 26.4X yield 1.1%
  • Conclusion This is a difficult one to fault. I have tried. High ROE, high growth and repeat income with a strong balance sheet. Reassuringly expensive.

25 September 2018

Alpha FX – Trading Statement  

Share Price 555p

Mkt Cap £185m

·         Statement Trading in September month has been particularly strong. The board expects results to be ahead of expectations

·         Estimates 28% PBT growth is currently forecast to £17.8m. EPS 20% growth to 20.6p.

·         Valuation The shares trade at 26X current year earnings and yield 1.1% before upgrades which may make it perhaps 10% cheaper.

·         Conclusion This company is highly valued. In my view the only time it is justified to pay up for a company is when it is at an early stage and the operational leverage of high top line growth combines with high margins to ensure the company can grow into its valuation quickly. Alpha FX is one of these. Given the overseas expansion this company could show rapid growth. 

5 September 2018

Alpha FX – H1 Results  

Share Price 540p

Mkt Cap £180m

·         Results Revenue up 55% to £9.7m. Underlying operating profit up 29% to £4.1m with a 42% margin and EPS up 14% to 9.8p while the dividend has been increased 27% to 1.9p. The outlook is “highly confident”. Net cash is £13.9m

·         EstimatesThe full year revenue estimate of £19.7m looks conservative given 55% growth in H1. This equates to £8.3m PBT, a margin of 42%.

·         Valuation Current year PER is 25.8X and yield 1.2% from a dividend which represents a payout ratio of 30%. The market cap equates to 9X sales

·        View The shares are expensive and this is a high quality company with dedicated management, an embedded customer base and high margins. So the only uncertainty is the rate of growth. At 55% it can justify the valuation

11 July 2018

Alpha FX – Trading Statement  

Share Price 530p

Mkt Cap £177m

·         Update  H1 2018 revenue is up over 50% to £9.6m driven by Uk corporates and some traction in Europe. The statement refers to increased investment (aka “lower margins”). The board is confident full year profits will be “in line”

·         Estimates Full year estimates look for £17m of revenue which given £9.6m in H1 is somewhat too low. Margins are expected to be 49% which compares to 50% last year. Looks like revenue is too low but margins too high. Given the “in line” statement I would expect EPS expectations to change today

·         Valuation The PER for Dec 18 is 25.3 falling to 21.7X Dec 19 EPS

·         Conclusion The shares are a little rich perhaps in the short term for a period when the company is investing. Usually share price performance occurs when the investing starts to deliver results. But 50% revenue growth means it may not be too long to wait for the profits to catch up with the valuation.

23 October 2017

Image result for target emoji

Alpha FX – Currency Manager    

Share Price 493p

Mkt Cap £161m

·         Alpha provides software service to a company which enables them to hedge scientifically their FX exposure each month without the human bias of speculating on rates.  They charge for this by executing FX trades for the customer.  That was once how a stockbrokers business model worked until it was made illegal because it contravened rules of best execution. So if currency became a regulated investment Alpha would be contravening best execution rules. They would have to change the model and charge for the software which might make selling the product a lot harder.  Until that time it will continue to thrive

·         Valuation Growing its revenue at 48% this year makes the valuation come down sharply. On a PER of 32X reducing to 27X in 2018 I suspect the 2018 estimates are too low but it appears to me that the share price is discounting at least 3 years of continued strong growth rates

·         Conclusion The bet on this seems to whether currency will become regulated within 3 years which would reduce the rating and share price by about 50%.  My bet is that regulation is likely. Isaac Newton would have executed manufacturers of alternative currencies. Hopefully the FCA will have a different solution.