IC article - part 34 Jan 2023 09:03
Encouragingly, the demand side of the equation looks robust. In its latest disclosure of client numbers, the company revealed that FX risk management clients were up 11 per cent to 975 and alternative banking solutions accounts were up by three-quarters to 3,061 in the six months to 30 June.
The connection between technology investment and client growth was made by Katen Patel, fund manager of the JPMorgan UK Smaller Companies Investment Trust (JMI). Alpha FX is the largest holding in the trust and Patel says the company “stands out because of its technology and customer service-led approach in what has historically been a poorly served sector. As a result, the company has grown its client base 10-fold and revenue per client fivefold in the past 10 years”. It wouldn't be a surprise, in our view, if more good news on client numbers emerges at the next results announcement.
While higher interest rates are helping with short-term growth, the company is sensibly not taking that trend for granted. Alternative banking solutions may be benefiting handsomely from sterling, euro, and dollar funds held overnight on account, but this is a “potentially transitory” situation. The important point to consider is that a return to lower interest rates would not be some sort of disaster – the company’s growth prospects don't rely on exceptional interest income, as demonstrated by its top-line history.
A (deserved) premium rating
The shares have fallen by around 17 per cent in the year to date, which is still better than on the sector-adjacent performance of asset managers. Despite strong results, the company has been caught in the nervous market’s wider sell-off. This has led to a de-rating, with the shares trading at 26 times forward earnings, according to data-provider FactSet – below the five-year average of 30 times. House broker Liberum, which raised its target price fractionally from 2,425p to 2,460p after the latest trading update, forecasts sales growth of 47 per cent and cash profit growth of 44 per cent between 2021 and 2023. It says the current rating is “an attractive entry point to a high-quality growth company". That looks a fair conclusion.
Unicorn’s Mackersie says the investment the company is making in its future, its chunky earnings growth, and its track record of beating expectations mean that a premium rating is justified. JPMorgan’s Patel, meanwhile, says that Alpha FX “will become a much bigger business in times to come” if it can capitalise on international opportunities. We think it looks up to the challenge. Buy.
Sign In
Follow the stocks
