Alpha FMC reports a pick-up in business transactions

Consultancy expertise is a luxury that many companies feel they can do without currently. Results for Alpha Financial Markets Consulting (AFM) provided only partial evidence that the worst of the fee squeeze is over.

The company, which offers specialist strategic advice to a range of financial services providers, saw its gross operating margin fall by 2.4 percentage points to 33.5 per cent as lower utilisation rates for its consultants and stagnant fee levels took hold over the summer. Still, despite these issues, net fee income rose organically in the half by 7.2 per cent to £115mn, with utilisation rates returning to plan in October. The company’s fall in net cash reflected £16.9mn of acquisitions, plus a dividend payment of £12mn.  

Management said market conditions had reduced visibility on its annual income to below 55 per cent of sales, with fee levels also frozen to retain clients, but it was at pains to stress that the worst seemed to be over and that business transactions were starting to pick up in the second half, with consultants busier and day rates staying consistent. Overall headcount grew by 14 per cent and AFM currently has 1,051 consultants on its books spread across the UK (420), the US (365) and Europe (266).

Divisional results showed that the US market was growing the slowest with net fee income growth of just 2.1 per cent at constant currency, to £45.3mn. By contrast, the UK saw fee income rise by 14.1 per cent to £45.5mn. The company says that in the long term it expects the US to be the key growth market for its consultancy business.

“We don’t operate in areas where consultancy advice is commoditised. Outside the big four business consultancies, things are more specialised. For example, a key market for us is insurance companies that need consistent, high-quality advice for their complex operations”, said chief executive Luc Baqué. Indeed, insurance is one area of the business that is expanding, and Alpha added 12 clients and 38 consultants in the half in its insurance division.

Analysts at Peel Hunt reckon that AFM’s share price is currently at a 38 per cent discount to the consultancy peer group. The broker forecasts earnings per share for 2024 of 25.7p, giving a price/earnings ratio of 13.5. In the context of AFM’s performance, that isn’t bad value considering the business carries low debt and has a model that can achieve operational gearing if fee growth returns next year. Speculative buy.

Last IC view: Buy, 425p, 22 Jun 2023