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I've just bought some more. Back up to my biggest holding. Of all the stocks I own, this one has the most ridiculous valuation. There's nothing not to like. Huge cash balance, good growth record and medium/long-term prospects, interest rate hedge, fantastic management... They don't give EPS numbers in the update but if you take the market cap (717 according to HL) and subtract the cash balance (177) you get 540mil. But PBT is 115, so that's a PE ratio of 4.7! It makes no sense. You could object that if interest rates fall to 0 (very unlikely) with PBT steady at 42 then the PE would be 13. Ok, but if interest rates fall they'll very likely grow much faster and the chance rates go to zero is so slim. And a PE of 13 is still hardly elevated. Let's face it, in under 5 years they're current cash balance will likely exceed the current market cap. Whichever way you look at it, it's a complete no-brainer. Another plus point is that cash balances have increased this quarter... Personally, one thing I'd like to see is a bigger divi. Sure I'd rather they invested in growth but they're earning so much cash it doesn't seem like they are able to spend it all. Why not adopt a policy like Games Workshop where 'truly surplus cash' is handed back to shareholders?
Alpha another fantastic trading update yet the share price is down.
Margins have remained steady which is impressive considering they are spending heavily now for future growth.
PBT up 10% yoy on an underlying basis - even in this tough environment the company is growing well. When the environment improves growth rates of > 25% will resume here.
In the meantime the company is making cash hand over fist as the client balances of their alternative banking division swell. As a result PBT on the year is up 140% to £115m. Cash on the balance sheet up by over £60m to c. £177m
Seems like the market is completely ignoring the cash from interest on these client balances.
Trailing PE for FY23 here now under 8. Its completely absurd how cheap this growth stock is.
Should be getting a trading update here on Wednesday 17th
Thanks golfnut59. I think what's being priced in is interest rates falling in the medium term by an uncertain amount but staying well above 1%, but that still impacting other operating income, and little to no growth short term, with agnosticism to prospects further down the line. As it is, growth has pretty much stalled (over the last couple of quarters), but I think that is probably a short term issue and medium term I'd expect growth of say 10%. In the meantime they're generating loads of cash, so I agree it's very cheap. But then so are a lot of other good companies, so it's also just a reflection of appalling market sentiment towards UK small/mid caps.
Thanks golfnut59. I think what's being priced in is interest rates falling in the medium term by an uncertain amount but staying well above 1%, but that still impacting other operating income, and little to no growth short term, with agnosticism to prospects further down the line. As it is, growth has pretty much stalled (over the last couple of quarters), but I think that is probably a short term issue and medium term I'd expect growth of say 10%. In the meantime they're generating loads of cash, so I agree it's very cheap. But then so are a lot of other good companies, so it's also just a reflection of appealing market sentiment towards UK small/mid caps.
Hi Koolhead.
Initial free cash flow of £50m
5% growth rate in year's 1 -10
Discount rate 10%
Terminal rate 1%
Fair Value = £17.84
I'd like to point out that a 5% growth rate is very low and pretty unrealistic when you take into account that ALPHA have 5yr CAGR of c.50%
Just wondering but if initial cash flow were £50m and growth at a) 5% and b) 0% what fair values would you get? I'm interested because if either were close £16.60 that would suggest what is currently being priced in.
Financial modelling is notoriously difficult but I have completed a DCF on a number of scenarios to determine what a fair value on the Alpha share price should be.
As we are all aware, the current high interest environment means ALPHA will make in excess of £70m in free cash flow this year. In all scenarios I have used a very conservative discount rate of 10% and terminal rate of 1%. Based on an initial FCF of £70m. Here are the results:
Growth rate (years 1-10) of 5%. Fair Value = £24.39
Growth rate (years 1-10) of 10%. Fair Value = £34.83
Growth rate (years 1-10) of 15%. Fair Value = £49.86
If you go ultra conservative by assuming an initial free cash flow of £50m to reflect the slim possibility of interest rates returning back to less than 1% in the next 12-18 months. Even then, if you use a modest growth rate of 10%, I'm still getting a fair value of £24.88 per share.
However you wish to dice it, using DCF, at £16.60, Alpha shares are very undervalued.
I have added to my position today
Shearclass - you always seem to very much switched on analysis - do you a view on the slide in share price ?
Updated institutional holdings in the stock to 30/9 now out with institutions holding about 86 % of stock and State Street a new institutional investor. Are you guys still holding this stock or is just me left in with this ever falling stock ?
A poster on Advfn has highlighted that the inter-bank rate hasn’t really moved much since the last quarter - probably explaining the reason for the identical interest rate %.
Q3 - just come out. They are identical to Q2 ??. How can that be when interest rates have gone up over the quarter and surely the client balance must have changed??
We should be getting Q3 interest income figures very shortly but they are not as yet giving notice of these. Last time’s were on the 14th day after the quarter.
They'll not want to move to SETS until market conditions improve IMO. With £20 now broken & a H&S pattern developing I think £17 support is in play over the coming weeks.
Can’t see why it’s taking so long moving from AIM to premium listing. Brendon plc also made an initial premium listing announcement in March 2023 exactly like Alpha. By June 2023 - just 2.5 months later they were trading on the main premium market.
There we go. That has the look of an RNS prompted by shareholder queries.
Of greater interest to me: the progress of the licence applications.
Q3 interest income is around the corner. 4% on a £2.3b balance would be just super, thank you so much.
Alpha Group International plc posted unaudited Interims for the HY ended 30th June this morning. Group revenue increased by 20% to £55m, underlying profit before tax was up 9% to £19.6m and on a statutory basis increased 194% to £52.4m. Basic earnings per share was up 163% to 87.8p. The balance sheet remains strong with adjusted net cash increasing 25% in six months to over £142m. Valuation remains something of a headwind with forward PE ratio a 26.1x bottom quartile for the IB&IS sector, the share price also lacks momentum and continues to drift sideways in a 2-year range. The business is solid, profitable and has longer run growth potential, but ALPH remains a share to monitor for the time being. ..
...from WealthOracle
wealthoracle.co.uk/detailed-result-full/ALPH/793
Can’t see anything in the interim report today re listing on the main market today as we were promised in March 2023? That is disappointing.
This RNS took me by surprise although I really like the look of this new acquisition. Cobase looks like a fantastic little business that has built a really innovative software banking solution. The 50% client growth in the last 12 months suggests demand is certainly there for the product. With 100+ corporates using the Cobase banking software I would imagine Alphas slick sales team should be able to convert a big chunk of them into buying services from Alpha which will make the £8m (plus earn out) acquisition cost an absolute bargain.
If Morgan Tillbrook thinks buying Cobase is a good move then I suspect he will most likely be proved right like most of his decisions. Exciting times !
Check out the Cobase website. There is a lovely video explainer of their software solution https://www.cobase.com
The company are presenting the interest income as a bonus short term revenue stream, until that narrative changes it's highly unlikely the market is going to give them full credit for it. As I said last month, emulating Wise and treating it as underlying revenue split into two streams with one EPS number would be far more logical than what they are doing, but it is what it is.
I also wonder whether they want to keep the share rangebound until the exiting II's have completed their business.
Berenberg are the market maker who continues to block any move beyond £23, as soon as buys came in at £23.20 a couple of weeks ago they dropped the bid & offer which shut demand down. This has happened multiple times this year. Berenberg entered the major shareholders register last quarter with a 1.05% stake (~400k shares). I think what they do is sell a portion on an attempted breakout and then buy them back + more when PI's exit at the bottom of each trough.
This suits the buying II's as they can continue to buy at
The share price of this company is going to look pretty silly soon because regardless of how this company wants to be measured on EPS the statutory EPS must include interest income. So the statutory EPS this year will be £2 + and next year £3+. The share price anomaly will then stock out like a sore thumb to everyone. Patience is the key here . 1st flag will show when the interim accounts are produced in circa 3 weeks when the statutory EPS for the interims is £1+. Add in the expected update of the main market listing and we could have significant share price .movement.
The share price of this company is going to look pretty silly soon because regardless of how this company wants to be measured on EPS the statutory EPS must include earnings income. So the statutory EPS this year will be £2 + and next year £3+. The share price anomaly will then stock out like a sore thumb to everyone. Patience is the key here . 1st flag will show when the interim accounts are produced in circa 3 weeks when the statutory EPS for the interims is £1+. Add in the expected update of the main market listing and we could have significant share price .movement.
5% interest rat to be the new norm for a long time, alpha will be racking the money in.
In the news "Its message today is that interest rates above 5% are the new normal (as they were before the financial crisis of 2008) and Britain should again get used to that."
Some very large buys going through this morn, do they know something we dont?
Up to date latest economists Uk interest rates forecasts--Economists are now expecting UK interest rates to remain around 5.50% to 5.75% for most of 2024 before starting to fall at the end of the year. UK Interest Rates are expected to fall by around 0.75% to 5% by mid-2025 and even further into 2026 where they are forecast to settle at around 4.5%.