Alpha FMC: Results significantly ahead of expectations
Alpha Financial Markets Consulting, the global consultancy to the asset and wealth and insurance sectors, has released an update in regard to its trading. For us, the key highlight of the trading update is that the company said that it expects results for the current financial year (i.e. the 12-month period ending 31st March 2023) to be significantly ahead of market expectations. Consequently, we 1) have upgraded our forecasts; 2) now estimate that the expected return of an investment in Alpha FMC over the next five years is 97% (previously 92%), which equates to an annual return of 14.5% (previously 13.9%); and 3) continue to view an investment in the company as a 'suitable' one.
Summary
Ahead of expectations results
The company added that positive trading conditions in the second half of the year and ongoing client demand globally have again allowed the company to deliver strong double-digit organic net fee income growth compared to the prior year. Adjusted EBITDA has also grown well, with margins remaining consistent. Good progress in particular was seen in the North America region, including Lionpoint, the business that Alpha acquired in 2021. The group continues to deliver good sales wins and has maintained its strong opportunity pipeline. The company also set out its vision to double again the group's net fee income over the next 5 years, while maintaining a consistent Adjusted EBITDA margin profile. Alpha FMC expects to report its FY23 full-year results on 22nd June.
Upgraded forecasts
In light of the announcement, we have upgraded our revenue forecast for the current financial year and the following financial year by 10%, respectively resulting in revenue of £222 million (previously £197 million) and £230 million (previously £209 million). Maintaining our margin forecast (of around 20%), which equates to EBITDA of £45 million (previously £40 million) and £47 million (previously £42 million), respectively.
Unchanged risk profile
We have taken the opportunity to update our risk estimate of the business. With the shares having an adjusted beta that is 11% above the market (previously 14%), the degree of risk associated with an investment in Alpha FMC continues to be 'medium'.
Attractive valuation
Our preferred valuation method continues to be the absolute valuation method (rather than the relative valuation method), in particular, the free cash flow valuation approach (rather than the dividend discount model). The main things that underlie the assumptions of our model remain the same, which are: 1) the company operates in a total addressable market that is materially large; 2) Alpha's value proposition is unique 3) the management team is high-calibre and has a proven track record of organic growth; 4) the business has a strong reputation and deep relationships with global clients; and 5) the client base of Alpha is broad, diversified and expanding.
Year end Mar 31 · 2021 · 2022 · 2023 · 2024
Revenue (£mln) · 98 · 158 · 222 · 230
Gross Profit (£mln) · 35 · 59 · 80 · 83
Adj. EPS (GBp) · 15 · 21 · 27 · 28