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Cheers rango1. And exactly, this doesn't fulfil the role of a hedge if it's getting no credit for higher interest rates. I'd sooner hold WISE who are recognising interest income as a separate revenue stream but including it in gross profit, operating profit & EPS calculations. WISE reported operating profit of £157.2m for FY23, of which £140.2m was from interest income! Their shares have nearly doubled in the last year as a result of them reporting ahead of expectations, driven by this previously unknown profit lever.

The other problem is that Alpha appear to be putting themselves in a lose lose situation. In my view the only way interest rates will be cut back to near zero in the next 3 years is if there is a huge recession & the economy needs major stimulus. If that happens then their wider business will almost certainly de-rate, particularly as interest income will quickly cease.

However, should things continue as they are, with record low unemployment, sticky inflation & resilient economic performance, then it appears their underlying business could struggle to maintain high growth rates. So they could end up with a compressing PE ratio & a growing cash hoard.

I'll leave this board alone until we get further detail in the interims. I'd say it's fairly critical that they evidence a clear plan for what they are going to do with the ~£180m cash they are forecast to have on hand at the end of this year & the forecast £250m at the end of FY24...

Ps. Everythingmoney, it is utterly pointless trying to compare the PEG ratio of an AIM company with NASDQ 100 high flyers. I'd also add that there is next to no chance that the CFO of any US listed entity would ever subscribe to ignoring £70-100m PA of interest income in the name of prudence

@golfnut, the margin of safety certainly appears to be very high on paper. However, I do think they need to be careful about being too prudent / clever.

The PEG ratio + quality of the earnings have always ensured that the market cap makes sense; in September 2021 when shares hit £22 for the first time, EPS was forecast to be 55p so the PE was ~40. At that point in time revenue was growing at around 45% PA, so the PEG was 0.89, which is a positive metric.

Last years underlying growth slowed to just under 27% and is forecast to slow to 22% this year (based on FY underlying of £119.8). However, the 20% growth reported today fell just below that. Underlying EPS, which they are sticking with, is forecast to be 73p, so at £22 it's on a PE of 30. The PEG has therefore worsened to 1.5, which on the face of it is decidedly unattractive in the current market.

I'm not saying it's going to happen, however in the event they were to miss full year UNDERLYING expectations due to the wider macro environment, I'd predict a high likelihood of shares de-rating to a PEG of closer to 1. Perceived slowing growth does not tally with PE's of 30x in the current environment, especially not in the current UK market.

Now just to be clear, I absolutely don't think that Alpha should trade at 30x the forecast reported FY23 EPS of £1.89, however I do believe that if they had followed the example set by WISE and stuck to recognising all revenue as underlying, regardless of it's source, then shares would likely be trading at 18-20x the forecast reported EPS, so in the £34-36 range. In my opinion that would be a deserved valuation given their strengthening fundamentals & exciting future growth potential.

Instead, they prefer to treat their new income stream as a fluke & second guess where the global macro is going to head, despite their being zero evidence of interest rates being cut, never mind returning to pre 2021 levels...

Now you can absolutely argue that the above opinion is glass half empty, particularly compared to prior posts of mine, however I've seen so many companies get punished by the market for missing expectations due to unavoidable supply chain issues, worsening debt due to interest rates, increasing discount rates etc. So it seems rather frustrating for a quality outfit like Alpha to trade on a reported PE of 11x due to a desire to downplay a significant income stream that has resulted from negative macro developments!

Frustrating. Whilst they are successfully battling macro headwinds, underlying growth of 20% isn't enough to push shares higher. On an enterprise free cash flow basis they are now criminally cheap though - back in September 2021 when shares first hit £22 their 1 year forward FCF yield was around 3.5% (£31m / £850m EV), today it's over 13% (£95m FY24 estimate / £705m EV).

One thing is for sure, if they had reported first half revenues of £88m inclusive of the £33m interest income, giving YoY growth of 91%, shares wouldn't be trading flat!

I suspect the delay is connected to them deciding what to do with interest income - i.e. accounting policies need to be changed & guidance updated. Could be wrong but that seems the most logical reason for the lack of an update so far. Highest volume for a couple of months today - the usual incumbent II's offloading to each other I presume - it really is incredibly tedious!

Completely agree ddubya. It's a crying shame that anything publicly listed can't seem to get a shred of UK government support. It's a very different picture in Australia, Europe & the US. It's either utter incompetence, naivety or something worse.

There was a lot of enthusiasm from private investors when this IPO'd but it was always undercapitalised & once the British Volt project turned to dust I didn't see a chance in he*l of AMTE being successful. Thankfully the tories will be gone in 18 months, labour can't be worse than the utter charlatan's that have presided over the last 7 years of disastrous in fighting.

Ps. I'm dismayed to see PI's still buying this - what are they thinking? I presume many haven't even read the RNS...

Really interesting bit of insight on ABS posted by Citibank on LinkedIn & shared by Alpha;

https://www.linkedin.com/posts/citi_by-leveraging-citis-global-network-and-our-activity-7087140225218449408-yhh2?utm_source=share&utm_medium=member_ios

“Partnering with Citi to leverage Payer ID and its global capabilities was the last piece in the puzzle and has been instrumental in our success.” Adam Dowling, Group Managing Director, Global Account Solutions, Alpha.

Definitely not against the crowd, as per the IC link shared a few days ago Alpha are by far the top 'small cap' pick of UK fund managers & have grown in popularity this year; https://www.investorschronicle.co.uk/tips-ideas/2020/11/18/fund-managers-favourite-uk-smaller-companies-shares/

It's just very under the radar for now, almost certainly because the company want it that way. As I've said before, they only have 1 analyst covering them! I think you'd struggle to find a similar situation in any other global market. Certainly I think the combination of a founder CEO, impeccable equity growth story & potential for the future makes it unique. But yet, patience required for the time being / a chance to accumulate.

I think the answer arrived after close with the 250k sold at 30 seconds past 8am, that plus another 70k kept the lid on it until mid afternoon, there was nothing on the book into close. Hopefully that 2m volume day has cleared them out - has to be distressed / forced or there is no chance you’d be dumping like that. Maybe Odey had a 1% holding?

Where are they mopping up shares from though? One funny thing is that if there do happen to be any undisclosed naked shorts in the market they are going to be sh*tting themselves at this news. The chairman first bought shares in earnest in December 2021 (725k @89.2p) to add to a prior 250k holding. I think 19 months is fair enough warning for anyone wanting to get on board?

Cheers @golfnut59, yours is an excellent post too. It's a very interesting company and I think it helps to share thoughts - more than anything to confirm you aren't going crazy re. valuations...

Using the info provided by Alpha I've tried to estimate the proportion of client cash as a % of an average alternative investment portfolio. The starting point is the Preqin research quoted in their annual report;

https://www.preqin.com/insights/research/reports/alternatives-in-2023/ceo-foreword

"Preqin tracks 160,000 funds globally and we estimate that each fund will have on average ten assets, each requiring accounts"

+

"We expect AUM to rise from $13.7tn – as of year-end 2021 – to $23.3tn in 2027, a compound annual growth rate increase of 9.3%."

At the end of 2022 Alpha had 4200 accounts live, so applying that to the estimated 1.6m global market size, had a market share of just 0.26%.

The TAM at the end of 2022 based on Preqin's 9.3% growth rate would have been $14.9t, so we can estimate that the total value of client accounts utilising Alpha's solutions was $14.9t *0.0026 = $39.3b, which at an exchange rate of USD 1.2 is £32.7b. Therefore, if client cash balances averaged £1.6b in Q422, you can calculate that the proportion of cash held per account was ~4.9%, which feels about right.

The industry is absolutely massive. If we assume bank accounts grow in line with AUM at 9.3%, then the ~1.6m at the end of FY22 will become ~2.5m by the end of 2027. If Alpha can grow their market share to 1.5% by that point, they would have 37500 accounts under management (they are targeting 8400 at the end of this year, so that definitely feels possible), with ~$350b/£290b of AUM.

If just 2% of that is held as cash then average client balances would be £5.8b, which at a blended interest rate of 3% gives ~£175m per annum interest income.

The crazy thing is none of the above figures seem outlandish when you consider that average client balances in Q421 were £800m, so they have grown by £1.1b in the last 5 quarters. If that average quarterly cadence of £220m is maintained, then in 18 quarters time at the end of 2027, average client cash balances will be £5.86b.

Of course that leave loads of upside. Indeed, when you consider WISE customers held cash of £11.5b at the end of Q2 it makes the numbers above seem very achievable , especially with very significant resources to throw behind new customer acquisition & new tech development.

IF they can deliver the above then I don't see why the market cap can't grow to where WISE trades at today (£10b). It's going to be quite a ride I think. All the above is NOT investment advice - do your own research!

They aren’t sales at all, there has been a false spread all morning so almost all are actually buys, someone doesn’t want this to go anywhere at present.

Left field suggestion - are they making this change to try to deter an acquirer or alternatively to force their hand? It’s been trading very strangely over the past few months considering the raft of good news.

Yes, however the cost figures released to 31/12 are just for the LIT share of invested capital. The forthcoming FV change will surely include some further uplift to account for the 25/35% Fund management performance fees? I could be wrong on that but it would seem logical.

Either way, I agree that maintaining some level of conservatism would be sensible. A$300m as a first port of call would be fine - it should rapidly grow as the rest of Fund 1 + the much larger Fund 2 is deployed. Will be very interesting indeed to see how they approach it.

that's all fair comment, however any company that takes a contrarian approach to the industry norm is liable to fly under the radar of the vast majority of investors. for better or for worse, bur, obl & mano all use fair value accounting, lit are the odd ones out. fwiw i suspect they'll continue to provide far more transparency around underlying business performance than their peers - it's also important that they have a ****genous fund structure so far, which contrasts dramatically vs peers.

i reckon balance sheet equity post fair value realignment is likely to be in the region of £200-300m, based on the growth of aum since they ipo'd.

At the end of the day they've tried to do things a different way to the rest of their industry - that's admirable & it certainly led to a more transparent balance sheet (good luck trying to decipher BUR...), however, today's news is undoubtedly the right decision & a major step forward.

The market has made the decision for them Forensic. They can't continue to trade at 30-50% of the fair value of their peers, it's not in the interests of shareholders & risks them being taken out on the cheap. The chairman loading up was a clue that value would be unlocked at some stage, so this won't have been a decision that they've taken on a whim. It should enable them to trade in line with their peers, September will tell us what the value gap is.

If any company sums up everything that's wrong with the AIM then it has to be NANO.

They have the brass neck to state 'PROTECT YOUR CASH and PROTECT YOUR COMPANY' just a few months after utterly stuffing all shareholders who were stupid enough to support them from 2019 onwards, LOAM aside.

The simple fact is this; if the company had a genuinely exciting future with passionate management then it would never be considering returning 10p / ~£35m to shareholders via a special dividend. They would have communicated a new growth strategy & stated that they were confident that they could generate a far more significant ROI for investors via capital growth than capital distribution.

I also bet they haven't hedged the second $65m tranche from Samsung. On the 3rd Feb cable closed at 1.205, valuing the second tranche at £53.9m. As of today that value has fallen to £49.7m. So post a £35m distribution they'll be left with under £15m, from which they'll have to pay corporation tax.

What a relief to get rid of this on the morning of 9th January of 47p. I took a substantial hit at the time but it once again proves the value of cutting your losses. This time next year I'll be surprised if this is valued at >£20m. It's a lifestyle vehicle for the directors which they are desperate to retain IMO.

Wise released their Q1 trading update this morning, the below two pieces of info are relevant;

- “Wise account balances grew to £11.5bn by the end of the quarter. On these balances we earned a gross interest income yield of 3.4% in Q1 FY24 (Q4 FY23: 2.8%) and the amount we were able to return to Wise account customers increased to 0.9% (Q4 FY23: 0.6%).

- Outlook for FY24 unchanged: Income growth of 28-33%, and adjusted EBITDA margin remaining elevated (vs. our medium term guidance of at or above 20%) as a result of higher levels of interest income net of customer benefits.”

I believe the emphasis on ‘elevated’ EBITDA vs medium term guidance is a far more balanced approach to treating interest income & hope Alpha adjust their approach for FY24 to match Wise.

Zero idea why oh earth you’d want to stop the dividend though, at 14p it cost £6m and is covered 3x by Q2 interest income alone! For IPO investors who are lucky enough to have held from 196p it’s a yield of 7%. Buybacks are a waste of capital when they are issuing incentive options. They are doing everything right, patience is definitely required though until the market values it fairly.

It won’t become a takeover target if they start to include interest income as regular earnings rather than other operating income. It made sense to separate them last October due to the rapid increase in rates during 2022, but the outlook now is wholly different. WISE have significantly re rated due to their new secondary revenue stream & Alpha need to get through the £1b barrier. A potential current year forward PE of around 10 is laughable.

It’s even cheaper on an EV/EBITDA basis. Year end net cash was forecast to be £168m with £45m interest income. It appears we can add another £20m to that forecast. So based on the market cap at £21, we’re trading at an EV of around £720m. EBITDA will be well over £100m…

Agree on the US, their market has lost the plot & it’s incredibly difficult to hold anything due to the lack of fundamentals. Not worth bothering with.

Ah, it's been moved to a new page. I can see why you were excited though;

https://www.alphagroup.com/investors/financial-information/#p-10877

£1.9b average client balances is absolutely stunning, that's the key figure going forwards as it gives an indication of how fast the ABS arm is scaling & is obviously the base for the interest income. To add £300m in Q2 is way beyond my expectations & already above the top end of Liberum's matrix for other operating income to YE23, released at the time of the full year results in March (3.1% was the peak of blended interest rates, £1.8b client balances)

So yes, ~£18m income for Q2 to add to the £11.2m in Q1 and now up to an annualised level of £72.2m. Earnings forecasts get quite crazy vs the market cap if they keep adding £300m per quarter to the average client balance figure, especially as I expect Q3 blended rates to keep increasing towards 4.5% and fully expect further hedges to have been locked in, to add to the ~£530m hedged at 4.1% for the next 2 years.

It will be fascinating to see what they do with the cash, it gives them some serious firepower.