The technology surrounding banking and finance is changing all the time. While this has largely been good news for the technology companies and the larger banks, some smaller firms have also been able to carve out a niche for themselves. One of these is Alpha Group International (LSE: ALPH). Alpha focuses on using technology to help companies and institutions that operate across borders, particularly when it comes to foreign exchange (forex) risk. This is important because forex fluctuations can have a big impact on a firm’s bottom line if it is paying for goods and services in one currency and selling them in another.
Managing such risk can be time-consuming and complicated. However, Alpha has pioneered a bespoke online platform for its customers. It allows for a large part of the process to be automated and facilitates a range of cross-border services, from opening accounts to assessing clients’ credit risk. It also helps them keep track of their funds. This technology is already proving a hit: the currency risk side of the business now has 1,047 clients.
Alpha Group reports strong results
However, in addition to continuing to grow its core risk-management business, Alpha is working hard to establish itself in another area: providing payment services to the alternative investments industry. This includes hedge funds, private equity and venture capital firms. Alpha believes that this subsector has been poorly served by other financial middlemen, and thinks that a more bespoke approach will therefore win it a large amount of business. Already, the part of the business serving the alternative investment industry accounts for 29% of revenue. At the end of last year, Alpha also acquired a bank-connectivity company, Cobase, which establishes links between companies’ accounting systems and their banks. The purchase further diversifies the business and provides opportunities for cross-selling.
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Alpha’s balance sheet and financials also look impressive. Not only were last year’s sales more than four times the level of 2018, but profits have increased even faster, jumping nearly tenfold, and are expected to keep on growing. Alpha generates an impressive return on capital employed of more than 40%, showing that it is deploying cash efficiently. Plus it is free of debt. It nonetheless trades at a relatively modest valuation of 16 times 2025 earnings.
Alpha’s shares have been extremely volatile over the past three years. But they now seem to be on the rise; note that Alpha graduated from Aim to the main market of the London Stock Exchange in May. Since then the stock has risen by a further 20% and is trading over both its 50-day and 200-day moving averages. I, therefore, suggest that you go long at the current price of 2,560p at £1 per 1p. I’d put the stop-loss at 1,660p, which would give you a downside of £900.
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