The trading update released just over a week before these results took much of the sting out of Alfa Financial Software’s (ALFA) weak half-year numbers. As previously warned, operating profit for the six months to 30 June had plunged more than a third to £5.4m. This came as the group, which provides software to the asset finance industry, experienced delays in implementing projects, lower discretionary spending by customers and an increased cost base.
Client confidence has been dampened by an uncertain global backdrop, a trend set to continue for the rest of the year and throughout 2020. With fewer customers transitioning from the implementation stage to ‘ongoing development and services’, revenue from this segment fell more than a fifth to £9.2m.
Increased investment in computer hardware and a new HR and finance system capitalised last year have pushed general and administrative expenses up by 50 per cent, squeezing the operating profit margin by almost nine percentage points. A competitive hiring market is expected to intensify these cost pressures as anticipated salary increases for its delivery teams will exceed inflation.
House broker Numis has slashed its target price from 200p to 125p, while trimming its forecasts. It now expects adjusted operating profit of £9m for the full year (down from £23m), falling to £7m in 2020.
| ALFA FINANCIAL SOFTWARE (ALFA) | ||||
| ORD PRICE: | 81p | MARKET VALUE: | £242m | |
| TOUCH: | 80-81p | 12-MONTH HIGH: | 171p | LOW: 66p |
| DIVIDEND YIELD: | nil | PE RATIO: | 15 | |
| NET ASSET VALUE: | 25p* | NET CASH: | £53.3m* | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 32.9 | 8.6 | 2.4 | nil |
| 2019 | 30.9 | 5.1 | 1.4 | nil |
| % change | -6 | -40 | -41 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £26.3m, or 9p a share, **Excludes lease liabilities of £21.1m | ||||
