Argentex open to trade

The main virtue of Argentex (AGFX) is that bumpy forex markets matter less to it than its stable of corporate and institutional clients who trade currency, or take out hedges and swaps, more when times are uncertain. Being the middleman in this context is proving to be a consistently profitable strategy for Argentex as companies cope with the sagging value of sterling by taking out forward contracts.

The trend was reflected in the breakdown of Argentex’s sources of revenue, where forward contracts sales surged by 50 per cent to £27.2mn for the year as customers offset their currency risk. The leap in sales was mirrored partly by the increase in staff costs as Argentex added capacity to its dealing and operations teams to increase its ability to handle new client business. That meant that staff costs for the year rose by 20 per cent to £15.2mn. The slower costs increase means that Argentex’s profit line clearly benefited from operational gearing generated during the year, particularly with a high spot cash conversion rate of 85 per cent.

As Argentex revenues tend to be second-half weighted, management said it is moving to a calendar year end for the 2022 results and will publish these for the nine months ended 31 December 2022 no later than April next year.

The valuation has held up well in a falling market and holds steady at 11 times house broker Numis’s forecasts for 2022. Its main problem will be achieving scale and dealing with emerging competition in what is a relatively commoditised forex market, but the business looks well run. Buy.

Last IC View: Buy, 87p, 8 Nov 2021