Alpha FMC delivers as the CEO departs

Chief executive Euan Fraser can leave with a sense of satisfaction when his 10-year stint at the helm of Alpha FMC (AFM) ends next spring, with the company reporting excellent growth rates as more of its asset manager and pension fund customers turn to Alpha for advice on improving business performance. The half saw genuinely strong organic fee growth, which doubled to 45 per cent after the impact of the Lionpoint acquisition is stripped out.

That isn’t to say that there aren’t areas of improvement for the company. The next chief executive will probably look to tackle the wide spread of fee margins that Alpha's geographic segments generate. This varies as much as 10 percentage points – for example, margins were 40 per cent for the UK market in the half but were only 31 per cent for Europe and APAC. Differing taxation costs, plus inflation running hot in the US, all contributed to the spread in margins, which are calculated as a percentage of costs.

“The UK market is very mature and there is an understanding and acknowledgement that using outside consultants can generate value,” said Mr Fraser. This means more asset managers will use Alpha’s advice for their core management businesses, whereas in Europe the company tends to be used for advising the secondary administration and back-office departments where margins are lower. “Luxembourg is where you see a lot of back-office work,” he said.

Alpha’s performance was impressive and validates the arguments in our recent buy tip (380p, 3 Nov 2022). At 20 times Berenberg's forecast earnings for this year, the shares aren’t cheap, but the company is set to grow quickly. Buy.

Last IC view: Buy, 380p, 3 Nov 2022