Alpha Financial Markets’ growth drivers remain strong

Alpha Financial Markets Consulting (AFM) delivered an impressive financial performance through to its March year-end, with cash profits up by 37.5 per cent to £46.6mn, coupled with a matching increase in the full-year dividend.

The specialist consultancy services provider increased its consultant headcount by nearly a third, which dampened profitability to an extent as the gross margin contracted by 220 basis points to 35.4 per cent. The group noted that competition had tightened as it entered its current financial year, a consequence of overcapacity in certain areas, while its sales cycle had also lengthened. It anticipates that this will remain a feature of its markets in the short term, so investors will need to focus on utilisation rates as the year progresses. The general impression is that management is now more circumspect in terms of discretionary spending, so it is unlikely that consultant numbers will ratchet up to the same degree.

Near-term challenges aside, group chairman Ken Fry insists that Alpha’s “structural drivers that underpin growth and demand for the group’s services over the medium to long term remain strong”. It has continued to launch new service areas and consulting practices, as evidenced by the post-period-end acquisition of Shoreline, an asset and wealth management consultancy servicing the Asia-Pacific region.

The share price contracted sharply on results day despite the 45 per cent sales hike. The spectre of overcapacity in the group’s markets has soured sentiment towards the stock – at least in the near term. The shares now change hands at an undemanding 16 times forward consensus earnings with an accompanying implied dividend yield of around 3 per cent. Above all, we concur with Fry’s long-term assessment, so we retain our ‘buy’ call.

Last IC view: Buy, 475p, 23 Nov 2022