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I agree, Golfnut. Anywhere under 18 is still an amazing bargain. Incredible that one of the best companies in the entire UK stock market got so absurdly cheap. To contextualise, my top 6 individual stock holdings are Alpha, Bloomsbury, Computacentre, Games Workshop, Legal and Gen (mainly for the divi) and Next Fifteen Group. They're all great companies but none of the others are trading at an absurdly cheap valuation (though Next 15 was a few months ago, at which point I loaded up as I am doing now on Alpha). This really has been one of those moments when the downside risk was practically zero and the upside huge. I can see these getting to £50 in the next 3-4 years and around £100 by 2030. For me, this company has it all.
I was also thinking about why they did the buy back. The obvious reason is that they have lots of cash and the shares are cheap. But they may also have been worrying about entry to the FTSE 250. Market cap had fallen to 650m. It would need to be around 500m at least to make the FTSE 250. Further SP declines could have put that in jeopardy, which would have been very embarrassing. I wouldn't be surprised if that was the main reason, as generally I think they're more focused on growth than returning cash to shareholders.
Thanks for these calculations ShearClass. Interesting to look at volume too in this context. A few days ago a lot of shares were changing hands. Today volume has been tiny. Yesterday they bought back 20k. The buy earlier of 10k, which dwarfs all other trades, could well be a buyback. And the price immediately jumped 20p or so. If this pattern repeats only one way the SP will go.
Makes sense. Anyone with half a brain can see these are chronically undervalued and Morgan Till took definitely has a whole brain. Personally I'd quite like the SP not to rise too quickly so they can buy back cheap and I have time to accumulate at these silly prices.
I have another theory about why the SP is falling. If you're a fund manager, you might be a forced seller of something but usually you could choose what to sell. So why sell Alpha? Maybe it's the interest rate hedge. For Alph falling interest rates is a double edged sword. So if you're expecting interest rates to be cut, as almost everyone is, wouldn't you place your bets only with companies that stand to profit from cuts? I'm certainly expect a lot of upside from all the companies I own that lost a lot of value in 2022 but that wasn't really the case with Alpha because of the other income.
Big test of the long-standing trading range here. It dropped to 15.00 on 1 Nov 2022 and 14.55 on 8 March 2022. Odds are it will rebound. If it breaks downside there's probably resistance around £13 which is where it was in March 2021. I'm heavily invested at an average of around £13 so getting rather annoyed about the current fall, though will definitely top up at this level or below when more funds are available.
@Shearclass. I basically agree with your point about headline PBT falling back. But given how much other income is contributing it is possible that if rates fall for the next 2-3 years that any growth in the cors business will be offset by falls in other income. The reason this is not a worry, for me at least, is that even steady PBT of 115 equates to an absurdly cheap valuation and we can also expect growing client balances to partially offset falling interest rates.
Another thing to be aware of is that, assuming that cash pile keeps on swelling at something like the current rate of 60m a year, the numbers Shearclass gives will get even sillier. That 501m it's worth (mcap minus cash) will shrink by a quarter in just two years.
There's also all the interest from their own cash. That alone could probably cover the divi.
I sometimes wonder if the current malaise reflects fear of interest rate decreases cutting the headline 115mil of PBT. Given that the core business isn't growing that fast this could make it look like the company was shrinking. So not sure I fully agree the market is just ignoring that (though some screening tools would miss it).
The other thing holding back the SP is probably also it's natural interest rate hedge. Whatever happens, looking at it glass half empty (as the market seems to be doing), is bad for Alpha.
But apart from mid 2020 when I first bought a big chunk this is definitely the best time to buy. I reckon this could X5 or X10 in the next 5-10 years if it can keep growing at a decent rate.
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.
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.
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?
Can anyone shed light on why the buyback program might have stopped? It was announced October 26 (up to £30mil) and they did a few buybacks up until Nov 1st but since then it doesn't look like they've done any more, with less than £1mil being spent. The sp has done well since then but isn't it a bit concerning that they've stopped the buyback so suddenly after announcing it? The obvious reasons would be either that they are short of cash or consider the stock is no longer such good value. Either way, this seems like a negative. Any thoughts?
If you go on the website, pretty much every wine is now part of a massive sale. The prices they're selling really are ridiculously low. Good for the consumer but looks like a desperate attempt to raise cash to me. Last time I saw wine going this cheap, the company went bust and the wine was never delivered (it was fine wine, so I lost over a grand).
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.
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.