Alfa Financial Software's (ALFA) IPO last summer was the largest UK tech listing since 2015. The clamour for the shares subsequent to the flotation pushed the group's market capitalisation beyond £1bn. Investors would have felt vindicated at the time of August's half-year results, which topped analysts’ expectations, but trading on a sky-high forward multiple, a lot was riding on the company’s maiden set of full-year numbers as a publicly traded entity.
Alas for Alfa, which supplies software to the asset finance industry, its share price fell nearly a fifth on results day. While performance was roughly in line with brokers’ forecasts, bosses now expect the weakening dollar to dampen revenue momentum in 2018 – giving rise to low double-digit growth, or mid double-digit growth at constant currencies. Hardly a disaster, but expectations were high, and dollar value significantly impacts group revenue and cash-flow, while the US comprises more than half of the top-line.
In fairness, the shares’ decline appeared excessive given it's an issue beyond management's control, and was undoubtedly exacerbated by the group’s relatively small free-float, which sits at 26 per cent. Small transaction volumes can thus inspire major share price fluctuations.
Other aspects of the results were more encouraging. While software implementation – the largest reporting segment – saw revenue fall 7 per cent to £44.8m, this reflected customers’ progression towards Alfa’s ‘ongoing development and services’ (ODS) business. Sales here ramped up a whopping 144 per cent to £21.2m, as the number of ODS customers contributing more than £300,000 in sales rose from eight to 14. Alfa recently announced a deal with a global equipment manufacturer, which will initially focus on Europe but could lead to business further afield. This should drive revenue growth in the second half of 2018. As a 'middle tier' deal, Barclays estimates the contract value to be around £5m to £10m – ranking among the group’s largest historical wins. That said, 2017’s lower implementation revenue drove a 30 per cent decline in operating cash flow, as upfront licensing payments fell and were matched by a decline in deferred revenue on the balance sheet.
Having downgraded their forecasts, analysts at Barclays now expect adjusted pre-tax profits of £45.6m and EPS of 11.7p in 2018, against £40.7m and 10.4p in 2017.
ALFA FINANCIAL SOFTWARE (ALFA) | ||||
ORD PRICE: | 401p | MARKET VALUE: | £ 1.2bn | |
TOUCH: | 400-401p | 12-MONTH HIGH: | 548p | LOW: 374p |
DIVIDEND YIELD: | nil | PE RATIO: | 44 | |
NET ASSET VALUE: | 18p* | NET CASH: | £31.3m |
Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
2014 | 43.3 | 18.2 | na | na |
2015 | 54.0 | 22.9 | na | na |
2016 | 73.3 | 17.2 | 2.8 | nil |
2017** | 87.8 | 33.9 | 9.1 | nil |
% change | +20 | +97 | +225 | - |
Ex-div: | na | |||
Payment: | na | |||
*Includes intangible assets of £24.7m, or 8.2p a share **Alfa floated in June 2017 |