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Alpha FMC's lowly priced growth

The consultancy is increasing headcount to take advantage of regulatory complexity and M&A within the asset management industry
January 31, 2019

Alpha Financial Markets Consulting (AFM) is capitalising on rising regulation and consolidation within the asset management industry. The specialist consultancy – which started trading on the Alternative Investment Market in October 2017 – has been winning new clients at an impressive rate, expanding geographically and boosting consultant headcount. That has translated into rapid profit growth, with the hope of more to come.

IC TIP: Buy at 234p
Tip style
Growth
Risk rating
Medium
Timescale
Medium Term
Bull points

Low PEG ratio

Fast-growing revenue

International expansion

Rising headcount

Bear points

Slim dividend yield

Small PE discount

Alpha FMC provides consultancy services to asset management groups, with blue-chip clients including Schroders (SDR), Janus Henderson and Axa. During the first half of 2018, it consulted to 252 clients – up 11 per cent on the prior year – which included 80 per cent of the global top 20 by assets under management. Services are offered across 11 practice areas, including M&A integration, regulatory compliance and, more recently, fintech and innovation, and data solutions.

Hiring more fee-generating consultants is a core driver of revenue growth, with headcount up 28 per cent during the first half and more than doubling over the past two years. Revenue has risen at a compound annual rate of 36 per cent over the five years to 2018. Solid growth is expected to continue, with analysts at Panmure Gordon forecasting that revenue and adjusted pre-tax profits will grow at a compound annual rate of 17 per cent and 57 per cent, respectively, over the next three years. That growth has been largely organic, although Frankfurt-based specialist data business Tracktwo was acquired in 2017 for £2m.   

The UK remains the largest contributor to revenue, accounting for 61 per cent in the first half, but Alpha has also expanded across Europe, Asia Pacific and the US. A secondment programme for employees has been established in the US, with headcount growing more than two-thirds during the first half alone. That translated into revenue growth of 29 per cent, although Europe and Asia led the way with a 41 per cent rise in revenue. Management is also targeting the Netherlands – which in 2017 was Europe's second-largest institutional pensions market by assets after the UK, according to data compiled by Willis Towers Watson – by hiring a Netherlands chief executive during the first half to build better relationships with institutional investors.   

Improved consultant productivity – largely below director-grade level – and constant utilisation meant gross margins rose to 38.7 per cent, from 36.5 per cent in the prior year. Managing such heady growth does carry risks, But the overall trajectory so far is impressive.

ALPHA FINANCIAL MARKETS CONSULTING (AFM)  
ORD PRICE:234pMARKET VALUE:£237m
TOUCH:230-238p12-MONTH HIGH:274pLOW: 159p
FW DIVIDEND YIELD:2.7%FW PE RATIO:17
NET ASSET VALUE:83p*NET CASH:£10.6m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)**Dividend per share (p)
201743.61.41.1nil
201866.06.04.05.2
2019**76.416.011.65.7
2020**91.319.313.76.3
% change+20+21+18+11
NMS:3,000   
BETA:0.65   
*Includes intangible assets of £74m, or 73p a share
**Panmure Gordon forecasts, adjusted PTP and EPS figures