Is Alpha Group a good buy?
Alpha Group helps clients manage risks such as foreign exchange. After being promoted to the London Stock Exchange, does the stock still rally?
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
US election: Trump is back - what does it mean for your money?
Trump is back, but what does his election victory mean for your money and which stocks are tipped to do well?
By Kalpana Fitzpatrick Published
-
M&S smashes profit expectations on the back of strong food sales
Marks & Spencer’s half-year profits rose 17.2% to £407.8 million, well ahead of the £359 million analysts were forecasting
By Chris Newlands Published
-
James Halstead is a family firm going cheap but should you buy?
James Halstead will rebound from a weak patch, while tax changes would be a buying opportunity
By Jamie Ward Published
-
The Gulf states: a new competitor for the City's financial crown?
Bahrain and other Gulf states could eventually threaten London's financial dominance.
By Matthew Lynn Published
-
Babcock: an overlooked defence investment
Defence stocks have outperformed this year, but Babcock has been left behind
By Oojal Dhanjal Published
-
British American Tobacco goes smokeless – can it survive?
British American Tobacco’s core product is struggling, but new areas bode well, says Bruce Packard
By Bruce Packard Published
-
Keir Starmer's 100 days in office: chaos and misery
Keir Starmer has achieved 100 days in office. The bumbling and grasping prime minister needs a guiding mission
By Emily Hohler Published
-
Harworth doubles profit as revenue soars – should you buy?
Harworth, a specialist property developer, is well-aligned with government policies, with revenue expected to rise by over 50% this year, and a further 30% the year after.
By Dr Matthew Partridge Published
-
Dr Martens shares slump: should you give it the boot?
Over the past three years, Dr Martens has fallen out of fashion. Are the shares worth a look?
By Jamie Ward Published
-
Bitcoin miner Riot Platforms bleeds money – what happens now?
Riot Platforms struggles to make a profit and looks absurdly overvalued. Are troubles brewing?
By Dr Matthew Partridge Published