Fee income climbs at Alpha FMC

Alpha Financial Markets Consulting (AFM) has upgraded its full-year guidance after a strong six months of trading, in which fee income increased across the group. The asset management consultancy is now on a hiring spree, hoping to cash in on growing demand for advice in the wake of Covid-19 and mounting ESG concerns.

Consultancy is a people business, and Alpha FMC is keen to increase its headcount. Over the past six months, it has hired 25 new revenue-generating directors, including 12 from Lionpoint, the strategy consultancy it acquired in May. Meanwhile, the number of fee-earning consultants (including those from Lionpoint) has risen by 50 per cent to 656. It continues to hire around the world. 

The recruitment drive will help Alpha FMC keep up with demand for consultancy services, which management says has grown significantly since the pandemic – the group has added 57 new clients through organic growth.

The team in North America – which has doubled in size as a result of the Lionpoint acquisition – is performing particularly well: fee income rose from £7.7m to £18.8m year on year. Chief executive Euan Fraser said the US market place is seven times bigger that of the UK, and is thus a source of "huge potential".

There are other promising areas of growth. The company has made progress in insurance consulting and there is growing interest in ESG matters and responsible investing. According to a study by Deloitte, so-called ESG assets are expected to represent half of global assets under management and there is uncertainty about how this transition will come about. This could boost the need for high-quality consultancy services. 

The company’s profit margins also increased over the half year, which management attributed to high consultant utilisation levels and an "improving consultant day rate environment". However, as noted by Berenberg, this improvement is likely to be temporary, as operating costs return to pre-pandemic levels and and hiring costs go up as a result of the recruitment drive. Berenberg ‘cautiously assumes a year-on-year margin decline, reflecting lower utitlisation levels in the second half. 

Alpha FMC faces other potential challenges. The company’s weighting towards active asset management could prove problematic if passive investments continue to take market share from active. Moreover, the battle for talent in the consultancy world is fierce, and Alpha FMC’s pay packets must keep up with those of its rivals – namely the big four accountancy firms and professional services company Accenture. 

Nevertheless, the group’s growth prospects are impressive and investors could feel the benefit: dividends are on the rise again after they were suspended in 2020, and Berenberg expects adjusted EPS of 18.2p in FY2022, and 19.8p in FY2023. Buy.

Last IC View: Buy, 190p, 24 June 2020.