Alpha Group harnesses forex tailwinds

Forex and alternative banking specialist Alpha Group International (ALPH) enjoyed a strong year as its ability to generate operational gearing from its fixed cost base, and a consistent underlying profit margin of 38 per cent yielded a near-tripling of reported pre-tax profits. The results were strong enough that the company was able to launch a £20mn share buyback programme, just in time for Alpha to complete its move from Aim to the main market this year.

Management described market conditions as generally difficult for most of the year, with the exception that higher interest rates made a large contribution to the company’s cash generation; interest earned on client balances was over £73mn (2022: £9.3mn), which contributed materially to adjusted net cash balances increasing by £64mn to £179mn.

While the extra revenue is extra bounty for Alpha, chief executive Morgan Tillbrook highlighted a paradox at the heart of the results: “At the same time, the interest rate tailwinds that generated such exceptional bottom line growth proved frustrating for our underlying business, stymying its pace of growth.” Customer acquisition in the core business was just 2 per cent, although revenue per existing customer was 7 per cent higher. He reckoned that the company had walked away from some sale opportunities because it didn’t fit the credit risk criteria.   

Peel hunt points out that Alpha at a price/earnings ratio of 8 is well below the rating for fintech specialists operating in similar areas. A successful move to the main segment of the market should increase Alpha’s profile with international investors, the broker said. We leave the recommendation unchanged. Buy.

Last IC view: Buy, 2,000p, 13 Sep 2023