Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Thanks for updating us with the share register info SC.
Good to see a couple of new entrants.
Move to the 250 cant come soon enough
Pleased to see that the quarterly holdings to 31/12 were added to the Alpha site today, as usual they go a long way to explaining the prior quarter share price movement & provide some much needed sanity.
Notable info; 2 new entrants on the list - Swedbank with 2.39% and Danske Bank with 1.42%, it appears likely these European II's took the secondary placing
Sellers (>50k share change);
Cannacord - 255k
JP Morgan - 216k
Soros Fund Management - 303k
Kabouter - 290k
Dowgate - 125k
State Street - first appearance on register in Q3 at 1.46%, below 1% this Q, so at least 200k
Arbdn - 86k
Jupiter - 78k
Total - 1.55m
Buyers (>50k share change)
Martin Currie - 142k
Fidelity - 138k
Chelverton - 147k
Aegon - 100k
Premier Miton - 173k
Total - 701k
So as we can see, >1% sellers outweighed buyers by ~800k shares, explaining the share price weakness. The secondary placing didn't help matters, however it appears to have allowed 2 new II's to join the register.rs / dealing with other II's directly.
Remember that the vast majority of these II movements are done via 'matched' trades orchestrated by the market makers. I.e. yesterday afternoon there were 4 x 27k + 1x 54k trades put through. It's messy & not what AIM SETSqx was designed for. At £692m market cap Alpha would slot in at number 189 on the FTSE 250, that move will almost certainly happen this year & should be fascinating to watch unfold.
I also struggle to see the shares falling below the 30 month range.
As far as I'm concerned the company should be using some of its cash pile to buy back shares. At these crazy cheap prices, it makes total sense to me. The £177m cash pile is growing by the day - the company are earning in excess of £1.5m per week in interest!!! Time to start deploying some of it in divis and buybacks
Golfnut - some great analysis and thoughts here, thank you. I think DCFs are one of the useful tools and the most important thing is that qualitative judgement of a company. I think Alpha are one of the very best companies on the LSE - the best I've seen - but I haven't had the time to research every company.
I've just added another £10,000 worth (at 1601p) for the first time in over 6 months.
If this keeps up, I'm going to keep on adding...
In the short term the question is how long can shares be dragged? I struggle to see them being pushed below the bottom of this 30 month range they have been stuck in (£15-23), as it simply makes no sense.
The wider market is being priced for a soft landing, something which would accelerate Alpha's underlying growth. The interest hedge would be reduced, but it's being valued at zero anyway, given the share price is at 2 year lows. Incredibly, in Jan 2020 shares hit £13.50 / £500m market cap after a trading update which flagged revenues exceeding £35m and PBT of £13.5m. Net cash was just £38m back then & the Alternative Banking business didn't even exist. So how on earth they are trading at a similar EV vs 4 years later is beyond me!
@ShearClass, well spotted. I did account for the £177m of cash.
Its quite clear the sp is being heavily manipulated by the mm's.
Also as you and @Koolhead point out, the reason fro the price fall is probably also significantly to do with funds being forced sellers due to outflows.
I will keep adding here as this opportunity is just too good to pass up
On HL I was quoted 1601 to buy and 1600.4 to sell. So the advertised spread of 80p is wrong and the real spread is 0.6p!
There is the odd buy going through at 16.80 though. I got quoted 16.02 to buy with HL. Strange. Maybe other brokers are quoting 16.80. That's a huge difference!
I agree golfnut. It's still falling though. You can buy at 16 now. The price is all about market dynamics, I expect. Alpha is a top 10 holding for lots of UK funds (Liontrust, Unicorn, JPM, Martin Currie, etc.) and these are suffering huge outflows, so they're probably having to dump it even though they'd rather be adding. And it's hard to see who else would be buying right now. It could easily go lower, but given the cash in the bank, strong cash generation, etc., there has to be a limit. At say £12/13 it would be crazily cheap... In the meantime I'm going to keep on adding. Along with Games Workshop, I think this is the best company in the whole of the UK market. In the long run I genuinely believe we'll make a killing on this.
Great work @golfnut, that's quite the margin of safety. I'm assuming that accounts for the £177m cash they hold too?
A large part of the issue here is illiquidity & market maker shenanigans. Right now, the bid - ask spread is set at £16-16.80, yet I've just added 1k shares at £16.02... almost every trade today has been a buy, but reported as a sell. I still don't understand why in 2024 market makers can advertise a buy price of £16.80 and then sell shares at £16.02, it's utterly bizarre.
Alpha bounced off £23 resistance (equal to exactly £1b market cap) no less than 6 times from September 2021 to August 2023. The last 2 occasions I watched the order book like a hawk, whenever buyers came in above £23, one of the market makers would drop their bid / offer and start selling shares. This quickly killed demand and led to a pull back. There was plenty of logic as to why Alpha should have re-rated last summer, however it simply wasn't allowed to.
Now part of this could be due to institutional activity, there have been forced sellers in Cannacord, Liontrust & Jupiter, shares which have been eaten up by JP Morgan, ABRDN & others. It feels to me as though market makers are being directed by the demands of these large buyers & sellers and the share price is constantly being 'managed' for the buyers benefit.
The main market move is therefore key, they move onto SETS and the price will be dictated by market participants instead. I can't believe that there aren't European or US funds who wouldn't be interested aggressively buying down here...
I've just run a reverse DCF on Alpha projecting cash flows for the next 8 years.
My assumptions are as follows:
I have assumed that over the course of the next 8 years Alpha will produce £400m in free cash flow = £50m per year average. I am basically implying Alpha will not grow at all in this time. (To put this into context, Alpha have done c. £115m pre tax net in FY23. It remains to be seen how much free cash this produces but its certainly going to be well north of £50m!)
Terminal Growth rate of 1%
I have applied a discount rate of 9% to these cash flows.
Based on these assumptions intrinsic value comes in at £16.58. The current share price is about £16.50 so this tells us is the market is pricing in ZERO GROWTH for Alpha from here on. Simply put, imo the market is dead wrong here. This stock is severely mispriced. I've bought heavily here and will continue to do so when funds allow.
Wow @ShearClass, your breakdown of Wise's earnings taking out the interest income really shocked me. An operating loss of £5m on a market cap of £11.8bn - madness
Indeed, had they reported in the same manner as Wise then today would have seen revenue of £183m vs £98.3m prior year and that PBT figure of £115m would have been taken seriously... There is no chance that a company with that trajectory is valued on a PE of 8...
Re. Wise, it's a very tempting short in my opinion. H1 interest income was £211m out of total revenue of £710m. The startling fact though was that operating profit was only £206m, so if they stripped out interest income in the same manner as Alpha have then they would have reported an operating loss of £5m! And this is a company on a PE of 30x / £11.8b market cap when taking into account their dual class share structure... Fairly crazy for the UK market!
Alpha's conservative approach of not including interest income in their underlying earnings figures is hurting the share price. As @ShearClass points out, whilst this is very commendable most companies do not report like this. This subject is covered by Liberum in their note today.
Liberum compare CY24 forecasts - Alpha vs Wise (who unlike Alpha include interest income in their underlying EPS) on an apples-to-apples basis.
On an EV/EBITDA basis WISE trades on a 3x premium to Alpha. On a PE comparison its 4x
This extract from the Liberum note expands on this point:
"The valuation delta between Alpha and Wise is thus hard to justify, in our view. Moreover, in Alpha’s case at least, there is a natural hedge: high rates benefit interest income, while lower rates benefit Alternative Banking Solutions. We believe this asymmetric valuation of interest income is a material risk to Wise in 2024".
A move to the main market is due this year. Surely more eyes on this value disconnect will close the gap. Alpha is criminally cheap down here. Ive added again today to make this my largest holding
Interesting to compare Alpha to Wise. Wise reported PBT last year of 145 mil, Alpha of 115 mil. But Wise's market cap is 8.8 billion and Alpha's, with cash subtracted, is 0.54 billion. Maybe Wise is growing faster and while I like the business I think Wise is overvalued, but still...
worth noting that in the update they emphasize that they turned down revenue opportunities. sign of a serious business. one thing i like about alpha is that, probably because it's a large part of the job description, they're very good at managing risk. very little chance of the ****ups you see elsewhere that are so destructive of shareholder value.
Then the 'cherry on the cake' is the interest income. I'm actually surprised that the average interest rate has peaked at 3.8%, which is lower than the 4.2% reported last week by Wise. Either way, it provides tremendous optionality moving forwards. Given their huge cash hoard & the prospect of significant growth to come (15k AB accounts with similar average cash balances to present would result in £4.8b cash), are they at risk of an opportunistic bid? If rates gradually pull back towards 3% then interest income would still be >10% of the current market cap per annum.
Can shares get cheaper? Sure. There is still the worst case scenario of a global recession + swift reduction in interest rates hitting all elements of their business. However, you'd still have a huge cash hoard + substantially profitable operation underpinning the market cap.
I'd also say this looks substantially less likely to happen than 6 months ago, given steadily falling inflation & continuing strong employment + growing real incomes. Time will tell.
Either way, I've bought back in today & will check back when the full year results land in a couple of months.
I was very impressed with the strength of the alternative banking performance, H2 YoY growth came in a ~20% and it's contribution to group revenues grew to 33% vs 29% a year earlier. It's worth digging into the numbers in a bit more detail;
FY21 had closing client accounts of 1746 & reported revenue of £20.4m, so ~£11.5k per account
FY22 had closing client accounts f 4200 & reported revenue of £28.8m, so ~£6.8k per account
FY23 had closing client accounts of ~6500 & reported revenue of £34m, so ~£5.2k per account
Why the contraction? Lower AB transaction volume and resultant FX commission. Let's assume they add another 2500 accounts in FY24 but average revenue per account recovers to £6.8k, the result would be revenue of £61.7m on a ~35% operating margin... medium term, if the add 3k accounts in FY25 + FY26, they would reach 15k total, which at £6.8k per account would deliver >£100m revenue. Again, you could very easily make the argument that a business with this financial profile could easily be valued at the current group market cap.
First post here in some time, back in July at £22 I thought the writing was on the wall from a near term share price perspective. Whilst ignoring such material interest income is applaudable & likely unique (I've certainly never seen a company report profit before tax > revenue), it isn't going to attract any speculative money (which is good long term, bad short term). It turns out that was the right stance to take, given shares have since declined over 25%. However, there is no doubt that the medium term value proposition here is very attractive.
The FX consultancy business is a cash cow, £76m revenue showing 10% YoY growth and likely bringing in PBT of >£30m. I thought this extract from today's Liberum update was fascinating;
"Not only did this result in less client activity, management also discouraged clients from using more complex, higher margin derivative products (consistent with their philosophy of putting the best interests of the clients first). Management also reduced its risk appetite, impacting revenues but resulting in the lowest level of client defaults in the last five years. "
That's fantastic from a long term relationship perspective & again shows they are entirely comfortable their strategy vs chasing top line at any expense. IMO such a high quality operation has to be worth a minimum of 20x operating profit, so I think a valuation of £600m for FXRM practically underpins the current market cap on it's own.
P2 to follow
I guess a couple of things might be holding the SP back.
A belief rates are going to quickly head back down and the boost to cash generation will be shortlived.
More fundamentally: a fear that AI is going to erode the FX business. I don't know enough to comment on that.
But I do know that it's the Alt Banking division that I'm most excited about...
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.