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Very interesting shortish read on why the market does what it does and how to pick great companies.
this is a must read ! Enjoy!
https://www.elearnmarkets.com/school/units/joys-of-compounding-by-gautam-baid/the-holy-grail-of-long-term-investing
Insiders own 22% of the stock, with the CEO owning 16%, plus numerous staff have share ownership plans.
This is important as it shows an incentive to make the company work and succeed, history shows founder led stocks outperform compared to salary based managers who only think in quarterly results only and their job security and yearly salary.
Simply put, founder-led stocks outperform the market for several reasons. This has been tested over the years and we have found the charts to prove it.
The more the founder is involved in the business, the better. Elon Musk's nearly 18% ownership is very ideal. Sometimes founders own only 1% or less and they may still outperform, but it definitely isn't as convincing as 18%.
High founder ownership combined with high insider ownership of other key members (CFO's, board members etc.) should yield even better results as you can be assured that it is in the key members' best interests to succeed.
here are some quotes--
"Don't just blindly buy a company because it is founder led! The company needs to be of high-quality and have a reasonable valuation. This will almost guarantee exceptional returns over the long run."
" invest alongside people who have a sizable equity ownership in the business. The first thing I do when I look at a business is pull up the proxy. If there are no significant shareholders among the executives and directors, it’s an easy pass. I go on to the next name."
"Entrepreneurial instinct equates with sizable equity ownership. If management and the board have no meaningful stake in the company – at least 10 to 20% of the stock – look elsewhere."
"You want to fish in good waters. Stocks with higher levels of insider ownership tend to outperform their peers, as backed up by various studies. In short, there’s good fishing in these pools".
"The more the founder is involved in the business, the better. Elon Musk's nearly 18% ownership is very ideal. Sometimes founders own only 1% or less and they may still outperform, but it definitely isn't as convincing as 18%."
Edit, this video is from 2022, discussing 2021 results, but still important to investors today.
Morning, first post after being off Lse for about 5 yrs. Came back on simply because of this gem of a company and feel many more investors should know about it. I have been watching and learning about it over last 6 months, finding out everything I can. Plus, impressed with the quality and knowledge of all posters here!!
It simply is incredible company, huge growth potential( which it is executing very well) debt free, cash rich, high inside ownership, high returns on capital, cash flow rich.
It is now as we know 3 companies within one brand ( FX, alternative banking and fund finance) I am most excited about alternative banking. As it is the one with the most growth and margins. With a potential 1.6 million accounts available and alpha is serving only 4000 at moment, means huge growth potential and scalable. It is also where the staff head count will be lower as its mostly tech and compliance front staff needed( less back office) hence lower wage cost. Alpha has its on high tech proprietary systems in use ( which i believe will be using some form of A.I.)( which also reduces the need for back office staff). Also with UK interest rates to remain elevated until 2025 and then settle around 3-4% for the long term, this is good news for the amount of interest alpha will earn.
We have a fantastic CEO ( who owns a lot of shares, as well as does the staff) who are thus incentivised to make the company grow, expand and remain very profitable, who thinks for the long-term, he states if you read the last earnings report, that the company thinks and plans for years ahead not simply for each 1/4. then IMO this is not only heading for ftse250( where tracker funds can buy in) but potentially ftse100.
Of course being on AIM allows basically any fund manager to own it, as times have changed over the years, but we all want tracker funds to, and could alpha be dual listed on the nasdaq? who knows, as that is where the huge volume of trades come in, and really raise the p/e ratio from the buyers.( we currently have a relatively low p/e only 26) compare that to other nasdaq stocks !
There are few you tube videos about alpha, but can all watch this form 2021 especially around 5 min mark where the ceo explains the alternative banking, which is in stealth mode. thanks.
in summary, we are an undiscovered gem of a stock, that few retail investors know about.
https://www.youtube.com/watch?v=XEBy5QdHOsA
Added in the last week too. Kicking myself for not going much heavier at c 1800..which was my initial buy.
US job mkt remains tight; GDP ticking along. Can't say it helps much else in my portfolio but higher for longer looks increasingly likely.
I've added again today on the UK inflation news.
The 6 year average ROCE here is ~24.3% with the last two years being 28.7% and 25.4%. If interest income tops £50m this year it's likely FY23 capital employed will increase by >£100m from the 31/12/2022 closing balance of ~£165m.
Should rates remain around current levels to the end of 2025 then I think it's probable that capital employed will top £500m. At a similar ROCE this would put EBIT at ~£120m exclusive of interest income, giving an EPS of nearly £3 (and a FY25 forward PE of
I also listened to two podcasts this week which profiled Wise & Adyen in depth. I believe Adyen has more relevance to Alpha given it’s B2B focus, whilst Wise is notable as it shows LSE does value growing & profitable fintech’s if they are industry leading (contrary to the false narrative spread by the some).
https://www.joincolossus.com/episodes/30866661/willar-adyen-a-first-principles-payment-platform?tab=transcript
https://www.joincolossus.com/episodes/50736441/revell-wise-moving-money-around-the-world?tab=transcript
The common theme of all three companies is that incumbent banks lack of innovation / reliance on antiquated systems / prioritisation of profit has created a clear need for something better. All three markets are also absolutely huge, with the $20 trillion alternative banking industry arguably the biggest of the three
Both very thought provoking and provide an idea of what could potentially happen here over the rest of the decade.
Yep, it’s a remarkable company that is essentially still in stealth mode due to having one analyst & an AIM listing.
The resistance at £23 appears to have held for the 5th time - moves in September 21, January 22, April 22, December 22 & now May 23 have all tried to and failed to break it. I don’t think it’s a coincidence that £23 = ~£1b valuation & it’s extremely rare for a none SETS based share to breach this level.
The move to SETS & the FTSE index will likely be required for this to change as it will allow buyers from anywhere in the world to purchase shares - at present it’s off limits to 99% of international investors due to its illiquidity & the fact it’s only possible to buy shares via the daily auction process at 11/2/4.30. Once this changes & some publicity arrives via new analyst coverage I expect the demand for shares to skyrocket.
Mouthwatering, ain't it?
And I've a whole lot of faith that that cash will be perspicaciously allocated by a very competent team.
A supercharged Growth stock that will also serve as something of a hedge should inflation (and rates) remain sticky?
Irresistible.
In 2021 there were 1729 accounts under management, so average cash swept per account was ~£460k. Last year the 4200 accounts had a slightly lower average cash sweep of ~£380k. Being prudent let’s assume this falls to £300k over the year, with 8400 accounts that would give an average cash balance of £2.5b.
Up to Feb they’ve locked in USD & GBP 2-year hedges for around £540m at an average rate of 4.1%, commencing midway through 2023. Since then interest rates have increased a further 0.5% in the UK & US whilst the ECB has added 0.75%. I think it’s fairly prudent to assume run rate interest of at least 4.1% on the unhedged balance for the remainder of 2023 (USD + GBP balances could earn more than this, whilst EUR will likely end the year between 4-5%).
£2.5b * 4.1% = £103.3m PA interest income run rate by end of year (£8.6m a month!).
Just how big could this get?
Really interesting announcement on Wednesday which really reinforces the vision stated in their latest annual report;
"Our vision over the next few years is to be recognised as the global leader in financial services, that is built to empower the alternative investment industry. The market opportunity in front of us is huge, and we are looking to scale at pace. Last year we ended with 4,200 accounts, and we intend to finish 2023 having at least doubled this to 8,400."
It very much feels as if Alpha is disrupting the alternative investment industry in a similar manner to the way Transferwise disrupted cross border money transfer.
It is frankly incredible how under the radar this remains, there appears to only be one analyst covering the stock (Liberum) and as a result I very much doubt anyone outside of the current funds invested + diligent PI's are aware of the story that is unfolding here. I'd be willing to bet that most analysts still think this is an FX player, such is the lack of awareness of this stock.
Looks like the share price is rising due to yet more predictions of an interest rate rise, which is good news for us!
Also, quick question, would be great if somebody can answer this and may help others too on here.
Say Alpha does move to the FTSE 250 in the next couple of years, will the share price that it starts with on the FTSE 250 stay the same or will it kind of start again for new investors?
For example, say Alpha moves to the FTSE 250 in 24 months time and the share price (at that particular time) is £25 per share.
Would it start on DAY 1 of the Ftse 250 listing at £25 per share and just simply continue from there, or do you think us shareholders just get what our shares are worth at that time and the share price starts again at the bottom like at £2.50?
I assume it simply would continue from whatever the share price is at the time and it just hops over from the AIM to the FTSE 250 list?
Very helpful that Alpha disclose quarterly movements in their shareholder register down to the 1% level; https://www.alphagroup.com/investors/share-information/
I've been tracking this for the last 2 quarters and in Q1 the notable movements were;
Sellers;
Cannacord - 612k shares
Liontrust - 194k shares
Aegon - 152k shares
Abrdn - 102k shares
Jupiter - 97k shares
Buyers
EQI Stockbrokers - 739k shares
Premier Miton - 202k shares
Overall net movement of top 20 shareholders was -413k shares, I suspect that the bulk of these sales were absorbed by PI buyers, which left shares up 3.7% over the quarter.
Because this still trades on SETSQX it's very difficult for new II buyers to enter & I suspect many won't be interested in dealing via a market maker given how tedious this will be. My assumption is that shares will remain rangebound with existing II's taking profit on any rise until the move to FTSE & presumably a switch to the SETS platform which will provide far greater liquidity & enable new holders to join the register.
Will be interesting to watch how this unfolds over the next few quarters...
Thanks for the clarification.
The interest income comes from their ability to pool client balances held in their alternative banking arm into a single overnight balance and then earn interest on it.
As per below extract from the results this balance averaged £1.6b YTD and will likely continue to grow as more accounts get added;
"So far this year, the blended average balances has been £1.6bn and the blended average interest rate has been 2.8%. As disclosed in the accounts, we have also hedged some of this interest income through interest rate swaps (see notes 10 & 15)."
If interest rates are sustained at the 3-5% level for the next few years & pooled client balances double or triple then you can see how beneficial a tailwind this could be...
Great news!
best performing stock on the AIM today - get in!
So the share price went up by over 5% today at 11:45am, which is good.
Asking these two questions below for a friend :)
1) I assume the interest rate hike announced today sent the share price upwards?
2) It's probably been discussed numerous times in this chat, but could somebody explain to me in baby language why when interest rates rise it is good for Alpha group and its operations? just so I know. - I also want to explain to my dad who is interested in investing too in Alpha - cheers all!
Even better. Thanks for sharing, I missed that.
@Golfnut, they also have a further £205m hedged;
" The interest rate swap contracts designated as hedging instruments relate to transactions entered into in December 2022 to fix the rate of interest receivable on cash balances held by the Group in respect of its own free cash balances as well as client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SONIA, the difference between the rates results in the Group receiving a fixed rate of interest.
The contracts commence in June 2023 with expiries in June 2025 and June 2026, with an average net interest rate receivable of 4.1%.
Upon expiry of the contracts or if they no longer qualify for hedge accounting, the deferred gains/losses in comprehensive income relating to the Group’s own free cash balances will be reclassified within finance income and those relating to client cash balances will be reclassified within other operating income. The hedging ratio at year end was 1:1. The hedge effectiveness will be reassessed at each reporting date."
So in total they have hedged ~£532m at an average net interest rate of ~4.13% which will pay interest out for between 2 to 3 years...
That leaves ~ £1.1b unhedged & presumably benefitting from the further 0.25% interest rate increases from the BOE & FED.
Not bad as a secondary revenue stream!
Very shrewd piece of business imo
On 17 February 2023, the Group entered into an interest rate swap for a notional amount of up to $400m to fix the rate of interest receivable on US Dollar cash balances held in respect of the Group's client cash balances. With the interest rate swap, the Group receives a fixed rate of interest and pays a floating interest rate based on SOFR, the difference between the rates results in the Group receiving a fixed rate of interest. The contract commences in August 2023 and expires in August 2025 with a net interest rate receivable of 4.14%. Hedge accounting is applied in accordance with IFRS 9.
Yes definitely the best company on AIM.
I have researched this company inside out, I know exactly what Alpha offers the patient investor.
This baby will be worth billions over the next few years. Loving the main market listing to come and the rational behind it.
Tillbrook knows precisely what he is doing. Best company on AIM indeed.
It makes me chuckle when investors in companies like ARGENTEX look towards ALPHA when making valuation comparisons. They use various ratios to determine how cheap their investment is compared to ALPHA. The problem is the are completely unaware that in most cases they are comparing their donkey with a racehorse.
As ever, another fabulous set of results for ALPHA. For me, without a doubt the best company on AIM
Such a pleasure to read the final results,
My highlights below;
FTSE 250 / Premium Listing
“As a business that is growing in size, becoming more global, and gaining interest from increasingly larger clients, particularly within the institutional space, we believe a Main Market Premium listing will serve to further enhance our reputation and support our market penetration as we move into new countries and engage larger clients. At the same time, Premium Listing reporting standards will naturally lead to higher levels of governance and disclosure, both of which we know will be well-received by our clients, banking partners and investors alike.
The Board and I are now in the process of establishing the relevant workstreams and timelines required to deliver a listing prospectus, with a target timeline of 2024. We are very excited to think that Alpha may shortly be in a position to join the FTSE 250 and will look to update investors again in September, when we publish our interim results statement.”
ABS international expansion;
“Whilst we are only scratching the surface of the European market, the service providers we are partnering with are global, and have already expressed a strong desire for us to expand our offering to North America and Asia. These regions are currently outside of our regulatory scope, but with the benefit of the interest tailwind, we have taken the opportunity to begin regulatory applications in the US and Singapore. These applications are just one such example of our accelerated investment in scalability that is being carried out to secure our global expansion. Providing these applications are accepted, this will open up new revenue opportunities for the business, from existing partners who have already shown a strong appetite to work with us in these jurisdictions.”
Interest income;
“So far this year, the blended average balances has been £1.6bn and the blended average interest rate has been 2.8%. As disclosed in the accounts, we have also hedged some of this interest income through interest rate swaps (see notes 10 & 15).” - That’s an annual run rate of £44.8m, nearly double Liberum’s January estimate.
Tremendous company.
Any material impact or even small one would have already been reported as RNS, IMO.