Alpha Group International's profits driven upwards by interest income

Higher borrowing costs, a loosening of supply chain pressures, and fewer deals in the alternative investment space have hit hedging demand. Forex manager Alpha Group International’s (ALPH) chunky revenue and profit increases (the latter being driven by £33mn of interest income) indicate that it is navigating such headwinds well, but given it had trailed this in a July trading update the market had already factored it in. Despite a dividend increase and the reiteration of full-year guidance, the shares were marked down by 5 per cent as cost base investment and market headaches led to a 400-basis points fall in the underlying profit before tax margin to 35 per cent.

Top line growth was certainly robust in a context of macro pressures. Forex risk management revenue rose by 21 per cent to £39mn as the group took on over 40 new clients. More cross-selling with the alternative banking solutions division is helping performance. Revenue there was up 17 per cent to £16mn in the half, but while account numbers were boosted by 75 per cent to 5,350, management now expects the figure to sit around 7,000 at the year-end rather than the previously mooted 8,400.

The group’s first acquisition since listing is an encouraging sign of balance sheet strength and future growth prospects. It agreed a deal (conditional on approval from the Dutch Central Bank) after the period end to pick up bank connectivity technology platform Cobase for an initial consideration of £8mn. Cobase posts annual recurring revenues of £2mn, but is growing rapidly. 

Joint house broker Peel Hunt argued that a valuation of 6 times forward EV/EBITDA “does no justice to [the group’s] robust high fundamentals or stellar track record”. We think the growth opportunity, with clients based in over 50 countries, remains significant. Buy.

Last IC view: Buy, 1,810p, 10 Nov 2022