Alpha FX Group PLC (LON: AFX) 

Alpha FX Group PLC is an FTSE AIM 100 Index listed company, engaged in providing alternative banking solutions and FX (“foreign exchange”) risk management to international corporates and institutions. Moreover, the Company provides banking solutions to over 600 organizations in around 30 countries. The Company has two reportable business segments – FX Risk Management and Alternative Banking. AFX is backed by several reputed investors.

The Company will provide a detailed trading update for the financial year ending 31 December 2021 in late January 2022.

Recent trend of dividend payments

AFX has a progressive dividend policy and declared an interim dividend of 3.00 pence per share, which was paid on 08 October 2021, while the ex-dividend date was 09 September 2021. In comparison, the Company had not paid any interim dividend for FY20.

Growth Prospects (also covers trading update released on 08 December 2021)

• Next-Generation Banking Platform: AFX had launched an alternative banking platform for the alternative investment sector. Moreover, it will establish Alpha as a leading provider of alternative banking solutions to the alternative investment space.
• Robust Client Numbers: The Company’s client numbers increased from 754 at the end of December 2020 to 838 as of 30 June 2021. Furthermore, AFX had maintained a diversified client base drawn from a range of sectors.
• Geographic Expansion: The Company remained committed to launching a new office in Milan in the second half. With this, AFX will establish its footprints in Italy and strengthen the Company’s tendency to attract high-quality local talent.
• New Divisions: The Company had achieved robust growth for all three newer divisions, Alpha Netherlands, Alpha Canada, and Alpha Platform Solutions, during H2 FY21 till date.

Key Risks

• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Omicron Variant: The Government-led restrictions under Plan B because of an increasing number of Covid-19 cases in the UK may adversely impact the UK Equities.
• UK GDP: The UK economy witnessed a disappointing GDP growth of around 0.1% during October 2021, less than the estimates.
• Bank of England Meeting: The Bank of England meeting lined up later this week may give clarity regarding the interest rate hike decision.

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Alpha FX Group PLC.

Tillbrook (Morgan James) is the most significant shareholder as it holds nearly 6.82 million shares as of 30 September 2021. 

H1 FY21 Financial & Operational Highlights (for six months ended 30 June 2021, as of 01 September 2021)

(Source: Company result)

• Robust Top-Line Business: The accelerated recovery in the client activity post lockdown and strong growth across all divisions led to a 90% increase in the total revenue to £34.2 million during H1 FY21.
• Profitability: The profit before tax jumped by around 225% to £15.3 million during H1 FY21.
• Balance Sheet: AFX remained well capitalised and debt-free, with net assets of more than £98 million and £67 million of own free cash on the balance sheet.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 14 December 2021, at 09:57 AM GMT, AFX’s shares were trading at GBX 2,097.50, down by around 2.67% from the previous day closing price. Stock 52-week High and Low were 2,340.00 and GBX 1,190.00, respectively.

From a technical perspective, the stock price is hovering above the 20-days exponential moving average of GBX 2,041.20, indicating an upside potential in the stock price. Meanwhile, the MACD line remained above the signal line, reflecting bullish price momentum.

Over the last one year, AFX’s stock price has delivered a positive return of ~71.36%, and it has outperformed the FTSE All-Share Financials index (benchmark sector) with a return of around 16.00% and FTSE AIM 100 index (benchmark index) with a return of approximately 6.32%. 

Valuation Methodology: EV/Sales (NTM) (Illustrative)

Business Outlook

The Company had carried the positive business momentum built during H1 FY21 into the second half as well with larger market opportunities. AFX had shown healthy demand for the services from existing and new clients, which resulted in a robust trading performance so far. Meanwhile, AFX had expected FY21 revenue and earnings to remain ahead of most recent expectations, positively driven by continued strong trading since 1 September 2021. The Company would seek to re-invest across all divisions in the business during H2 FY21 and aimed to maximise the long-term growth opportunities. AFX may undergo adverse corrections because of the rising interest rates prospect, global inflation, and Omicron variant of the Covid-19 pandemic. Nonetheless, the Company remained cautiously optimistic about the prospects for modest revenue growth over the medium term.

Considering the solid revenue growth during H1 FY21, robust bottom-line business growth, strong leverage position, resumption of interim dividend payments, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Alpha FX Group PLC at the current price of GBX 2,097.50 (as on 14 December 2021 at 09:57 AM GMT), with lower-double digit upside potential based on 10.43x EV/NTM Sales (approx.) on FY22E sales (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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