When Alpha FX (AFX) published its full-year results on 18 March, the currency risk firm said recent market volatility had so far had a “limited” impact on trading, and that it was on course to hit analyst expectations. Investors swooned at the apparent discovery of a haven in the market carnage, and responded by bidding up the group’s shares.
Twelve days on, and that bullishness has evaporated. After a strong run of earnings upgrades, the Aim-listed group now expects this year’s revenue and underlying earnings to be “broadly close to FY2019 results”, as clients wrestle with falling activity and working capital issues.
The about-face – alongside a dividend cut and the suspension of an employee share scheme – caused the shares to plummet 46 per cent.
Alpha is hardly the first company in recent weeks to warn on profits. But the size of its market drop suggests shock at the speed with which trading has deteriorated. Investor concern is also likely to have centred on management’s revelation that 223 clients have seen a significant deviation in the fair value of their forward contracts, and have been forced to cough up additional margin.
In another worrying development, Alpha’s largest client – described as a Norway-based global exporter of food produce – has been forced to break its contract, after running into working capital difficulties. That has left the client owing £30.2m to Alpha, which previously accounted for around 15 per cent of the group’s forward book, though an agreement to repay the loan by June 2022 provides some encouragement.
FinnCap analyst Nik Lysiuk said the decision to support the Norwegian client as commendable. “I can imagine an investment bank in the same position would immediately defer to legal action or threats, which by contrast, shows Alpha’s good culture,” he added.
