Alpha FX rides trade recovery

A combination of a Brexit-tail wind as the last companies updated their euro foreign exchange exposure, and much-improved trading conditions for its existing clients, was behind the strong recovery in forex specialist Alpha FX’s (AFX) first half revenues. There was also evidence of good organic growth as the company added 84 new customers to bring its roster up to 838.

The backdrop of stable economic conditions meant that Alpha FX was able to reach a deal on its single biggest credit exposure, whereby a Norwegian client agreed to weekly repayments until June 2022 in relation to an unpaid margin call of £30.2m. One immediate side-effect of the onset of the pandemic was that blue-chip companies stopped paying invoices while head office functions were de-centralised and Alpha FX’s client was affected by this. The agreed payment plan allowed a reduction for a probability of default provision of £153,000 in these results.

Chief executive Morgan Tillbrook said the company was comfortable with focusing on organic growth, in preference to acquisitions: “I would prefer reward our in-house teams, rather than risk the dilution that comes with acquisitions,” he said. He added that the company would focus on the complex corporate market for forex hedging, as this type of client needed services that larger retail fintechs simply do not provide.

Alpha FX looks like a fundamentally resilient business and that is reflected in broker Liberum’s forward price to earnings forecast of 33 for 2022. Having ruled out acquisitions to drive earnings upgrades, that rating is underpinned by its ability to generate organic business at a consistent level. Hold.

Last IC view: Hold, 928p, 02 Sep 2020