Ben Richardson, CEO at SulNOx, confident they can cost-effectively decarbonise commercial shipping. Watch the video here.
Glad to hear @golfnut, Alpha leave plenty of breadcrumbs but the scale of Morgan's ambition is hard to comprehend. I certainly can't wait to read the prospectus for the FTSE premium listing!
Over the last 12 months Craneware, Yougov & Global Data all had falls similar to the one Alpha is suffering, they all then rebounded as rapidly as they fell. All are illiquid midcaps trading on SETSsq, and the falls were likely driven by one exiting II. Time to try and switch off from here until results - easier said than done.
Agreed on the fact it shouldn't matter either way given the current valuation... I'd say average cash balance growth is a more important driver of interest income than the average interest rate received? I've done some high level work on it which would be good to get some thoughts on;
Preqin (who Alpha regularly reference as the Alternative investment industry go to) estimated global AUM as $16.3t / £13t at end 2023; https://delano.lu/article/preqin-alts-2028-report-indust
In their last annual results Alpha said; "Preqin tracks 160,000 funds globally and we estimate that each fund will have on average ten assets, each requiring accounts". So that would be 1.6m bank accounts at end 2022, which if we assume growth of 10% in 2023, would reach 1.76m
That would put Alpha's market share at 0.37% (vs 0.26% in FY22, 0.12% in FY21), applying this to the industry TAM of £13t tells you that the bank accounts under Alpha's control should contain ~£48b of assets, if they are representative of the industry! Of this total, at end Q4 £2.1b was held in cash, which would equate to 4.36% of assets. To me this seems in line with what I would expect an SPV or fund to hold, and it seems sensible as a model assumption?
Another piece of the puzzle is the average cash balance per client, which has fallen from £458k in FY21 to £383k last year to £323k this year. I think this is likely due to less account migrations, as flagged in the half year report;
"With funds less concerned about offboarding and facing numerous other challenges in this environment, this has understandably pushed account migrations down the priority list for both fund managers, and also the service providers that support them, and who need a good reason to suggest a migration to the fund managers. New SPV creation may be slower in the current environment, but in the long-term remains an enormous opportunity in its own right, with new SPVs opened every year, as existing SPVs come to the end of their lifecycles."
If we take a bit of a leap and assume existing accounts keep a consistent cash balance, then we can say that;
FY22 saw 2454 accounts added, which increased average cash balance by £800m / £326k per new account
FY23 saw 2300 accounts added, which increased average cash balance by £500m / £217k per new account
To me, those figures back up there being less migrations and more brand new SPV / fund account openings, many of which presumably won't be funded / active immediately, and so reduce the average cash balance figure.
If lower interest rates encourage more migrations, more deal activity & more FX transactions then I suspect that net net, ABS revenue should continue to grow strongly, particularly non interest income revenue.
Be great to get others thoughts on this / confirmation that the logic seems on point...
Cheers, I'd somehow missed that one. Adds significant context, good stuff. Will be very surprised if we don't see 20p+ here this year.
My reasoning for where we stand;
- Around 20 Institutional Investors playing musical chairs
- The fact the shares are on SETSqx, illiquid and controlled by the market makers (ps. one of those market makers, Berenberg, now own 1.15% / 500k shares which seems very unusual in my experience. First entered the 1% club 6 months ago)
- The diabolical status that the UK (and even more so AIM) has in world equity markets.
- The company downplaying interest income as a hedge rather than part of their business model
- The lack of proper analyst coverage (Peel + Liberum are the only brokers covering it)
- The lack of any Capital Markets Day providing medium term targets
- The fact it's transitioned from being an FX focused company at IPO into a fintech today (I'd bet most PI's still think it's an FX business)
- The fact it's appeared historically expensive vs other AIM FX stocks like EQLS, AGFX etc, due to it's chalk & cheese financial metrics
You could make a sensible argument that the ABS segment alone could be valued around the current market cap if it was listed separately...
@Koolhead, I just can't imagine any informed shareholder worrying about basic EPS shrinking if rates fall back a bit when shares are trading at
You got a link to that share talk @Deckchair?
Nice to see the share price marked up this morning on no reported volume :)
The picture is similar if we adjust the share price to account for the huge cash on the balance sheet;
2017: £159m / £13m cash / £146m EV = £4.46 share
2018: £206m / £36m cash / £170m EV = £4.65 share
2019: £464m / £38m cash / £426m EV = £11.48 share
2020: £521m / £52m cash / £469m EV = £11.69 share
2021: £895m / £88m cash / £807m EV = £19.70 share
2022: £960m / £114m cash / £846m EV = £20.18 share
2023: £678m / £177m cash/ £501m EV = £11.57 share
So it's effectively back to the same absolute valuation as 2019 (dilution of 16% in the interim period being a small part of the reason). PBT in 2019 was £13.5m vs £115m this year!
Totally agree on bucket vs thimble. IMO the opportunity here has been created by management acting in a way that is totally out of character with modern day stock market short termism
The derating / mis valuation here is most obvious when you look at market cap / book value or an enterprise value based share price.
On market cap / book value, I have the following figures at 31/12;
2017: £159m / £22m = 7.2x
2018: £206m / £47m = 4.4x
2019: £464m / £55m = 8.4x
2020: £521m / £87m = 6x
2021: £895m / £110m = 8.5x
2022: £960m / £140m = 6.9x
2023: £678m / £219m = 3.1x (based Liberum financial estimates at 18/01 + current market cap)
2024: £678m / £300m Liberum forecast = 2.3x
The average BV to market cap ratio from IPO to FY22 was 6.9x, which would equate to a market cap of £1.5b at £218m BV, or £34.70 a share. FY24 rises to £2b / £47 a share the same ratio…
Worth noting that 2018 saw a similar compression, presumably as some of the IPO investors took profits at the £5 level.
Also worth highlighting that WISE had a book value of £740m at it's HY results, so their market cap to book value ratio is well over 10x right now, while a fintech payments star like Adyen trades at ~18x BV. There is absolutely no reason that Alpha should trade at around 3x last years BV and 45% of it's IPO to FY22 average. Even EQLS is trading at ~4x BV, so even on a relative FX peer basis Alpha is significantly cheaper (and absolute ROE is far higher). Crazy.
Found this interview with the CEO from a few months back, don't think I'd seen it posted anywhere before;
https://m.youtube.com/watch?v=KAio3f8ltHo
Some really interesting bits discussed, especially liked the part about a £1b market cap company not seeming big anymore as it shows the scale of Morgan's ambition.
Re. M&A, I think international acquisitions that can help them rapidly jump into new markets & allow cross selling to a captive client base makes the most sense. I.e. Cobase have 130 clients who could utilise other Alpha services.
This ABS extract from the last annual report is also worth referring back to;
"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."
Opening offices in both of those jurisdictions to service clients would seem a logical next step & require significant investment
Whichever way you cut it, having a near £200m cash balance which is growing nearly 5% a month is a fairytale for an AIM company...
Shouldn't be long now until we finally have clarity on claim size. Looked back at when Greenx / Prairie filed their claim in 2021, share price jumped from 11p to 21p on the day, peak market cap was £47m / 6% of the £806m claim size. A similar valuation here would see us reach 28p :)
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.
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!
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...
And there we have the answer. Never a good look when a company sees a 27% decline in a couple of weeks and then issues an update like that. So they are expecting revenue of ~£50.2m in FY24 vs forecasts in the market (per sharepad) of £60.4m, plus reduced operating margins, although they don't say to what extent. Is this business ex-growth? Also good luck winning business in the US when they couldn't bear Serco in the UK!
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!
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
A classic case of what happens when something is pumped by SCSW. £145m debt vs £145m market cap still makes this extremely risky, especially with such minuscule operating margins...
The trading update on Monday was truly spectacular; from £122.6m of net operating income in H1 they now expect to report £290-310m for the FY. This means H2 is on track for £168-£188m in net operating income, for context if we exclude the covid fuelled 2021 period which had half year results of £230m & £178m, the next best result in CMC history was the £155m recorded in the 6 months to 31/03/22. Indeed, the last 5 half yearly periods to 30/09/23 had average net operating income of £138m, so Monday's jump was really impressive.
With operating costs expected to be flat vs H1 (£118m), the updated forecast numbers suggest that H2 pre tax profit will come in at £50-70m, which if realised at the midpoint would result in EPS of 16p a dividend payout of ~8p.
Why is this particularly notable in my opinion? Let's cast back to their 2022 results; "Investment in growth initiatives is expected to result in a 30% increase in net operating income over the next three years."
That was from a baseline of £282m net operating income, meaning their 3 year target for FY25 was ~£367m, or £183.5m a half, which is more or less in line with where H2 24 is forecast to land...
So are they on track for their medium term guidance? A level of income which would deliver operating profit of ~£130m based on operating costs plateauing at FY24 levels? I guess we'll have to wait a few months to find out! However, if they were to hit those targets in FY25 it would result in post tax profit of ~£100m, EPS of 36p and DPS of 18p.
That would mean shares trading at 127p are on a forward P/E of 3.5 and a FCF yield of nearly 30%. That ignores the >£200m net cash on their balance sheet too. It looks to be a very interesting play for a recovery over the next year IMO.
Crikey, just look at the delayed prints from Friday - nearly 800k shares changed hands around the £3 mark. Todays move tells us that either the buyer wanted more or the seller ran out of stock at that level, positive whichever way you look at it :)