Strong interim results from Alpha FMC
Alpha Financial Markets Consulting (Alpha Financial Markets Consulting PLC (AIM:AFM)) produced a strong first half performance with net fee income rising by 56.5% to £107mln, driven by particularly strong growth in North America. The performance included a full period contribution from Lionpoint, a provider of specialist consultancy services to the alternative investments' industry, that was acquired in May 2021. When excluding the Lionpoint acquisition and currency tailwinds, the organic growth was an impressive 38%.
The company says that there is good momentum into the second half and industry tailwinds remain firmly intact. Hence, management now expects to deliver full-year results ahead of current market expectations. Consequently, we have increased our earnings forecasts by 10% in each of the next two years.
Given the continued strong momentum, we believe the shares continue to look attractive, trading on 20x our earnings for this year.
Interim results
Adjusted EBITDA rose by 45.6% to £22.5mln in the first half and earnings per share increased by 23% to 14.09p. Consultant headcount surged by 40.4% to 921 over twelve months, or 21.2% over the first half. However, the recruiting process was first half weighted, so a similar rise in not expected in the second half. Gross margins were lower as utilisation rates reverted to target levels of 70%, from the recently elevated 75-76%.
The interim dividend was increased by 28% to 3.7p.
CEO succession
Euan Fraser is stepping down as CEO in March 2023 after ten years in the top job. He will be succeeded by Luc Baqué, currently global head of asset & wealth management consulting.
Forecast changes
We have upgraded our FY23 net fee income forecasts by 16% to £196.8mln and by 20% to 209.5mln in FY24. Our earnings forecasts rise by 10% in each of the respective years. Our forecasts remain conservative, and take account of the uncertain economic and geopolitical backdrop.
Constant currency organic growth was 38%
A major focus for investors is on return on capital employed (ROCE). For Alpha FMC, we estimate that ROCE was 36.3% in FY22 and we forecast 35.0% in the current fiscal year, which are impressive numbers.
The stock trades on 20x our upgraded FY23 earnings forecast, falling to 19x in FY24, which looks attractive given the group's track record of growth, high return on capital employed and strong balance sheet.
Net fee income rose by 56.5% to £107mln. On a constant currency basis, the growth was 48.4%. On an organic basis, excluding the impact from the Lionpoint acquisition, the growth was 45.3%. On an organic constant currency basis the growth was 38%.
Gross profit increased by 45.3% to £38.4m, translating into a margin of 35.9%. The 280bp decline from 38.7% in the corresponding period reflected utilisation normalising to target levels of around 70%, from recent elevated levels of 75-76%, while consultant day rate increases and salary inflation remain broadly balanced.
Adjusted EBITDA rose by 45.6% to £22.5mln in the first half and earnings per share increased by 23% to 14.09p.
Consultant headcount surged by 40.4% to 921 over twelve months, or 21.2% over the first half. However, the recruiting process was first half weighted, so a similar rise in not expected in the second half. Over the six months, headcount grew by 31% in North America, 22% in the United Kingdom and 8% in Europe and Asia.
The group hired or promoted nine new directors in the first half, including a new head of the insurance practice, who is from within Alpha.
Management sees potential to continue growing the North American business at pace into the foreseeable future, with a market size of seven to eight times of the United Kingdom. The insurance practice has also been growing, now with over 60 heads strong, and management continues to believe this market is at least the size of the traditional business.
Lionpoint has been a highly successful acquisition to date. It is an international business, with approximately 30% of revenues from outside the US, and management sees significant scope to further expand the business in Europe and Asia.
Interim results
CEO Euan Fraser is stepping down as CEO and from the board on 31 March 2023. Following this, Euan has agreed to remain with the group as a strategic adviser.
Luc Baqué, currently global head of asset & wealth management consulting at Alpha, will succeed Euan as CEO with effect from 1 April 2023. Luc, aged 46, joined Alpha in 2010 to create the Paris Office. He became head of Europe in 2016 and global head of asset & wealth Management consulting in 2020. Luc has more than 20 years of industry experience. Prior to joining Alpha, he spent five years with UBS in Paris as head of change management and six years with Solving International, a strategy management consultancy, specialising in Financial Services.
CEO succession
We have upgraded our FY23 revenue forecasts by 16% to £196.8mln and by 20% to 209.5mln in FY24. We note there should still be currency tailwinds in the second half, with the GBP/USD at 1.21 still well below the 1.34 average in the second half of last year, despite having risen by 7% since the end of September.
Our adjusted EBITDA forecasts rise by 10% in FY23 to £39.6mln and by 10% again in FY24 to £41.9mln. Our earnings per share forecasts increase by 10% in both of the respective years.
Forecast changes
Consultant analysis
We have upgraded our forecasts for consultant numbers by 22% to 950 as at the end of FY23 and by 23% to 975 in FY24. The main increase is in North America, followed by the United Kingdom.
We have increased our forecast for NFI per average consultant in North America for the current fiscal year, and conservatively eased our forecasts across the regions in FY24, given the uncertain economic backdrop.
Fee earning consultant analysis
Source: Company accounts and Proactive Research
Income statement
We have increased our forecast for underlying administration expenses by 11% in FY23 and by 16% in FY24. The depreciation charge forecasts increase, while the group is now receiving some interest on its cash pile.
Income statement
Source: Company accounts and Proactive Research
Cash flow
Net cash generated from operating cash flow slipped in the first half, largely due to working capital timing factors, but we expect a recovery in the second half. The group made additional payments for Lionpoint, with any outstanding payments scheduled to be made next year.
Cash flow
Source: Company accounts and Proactive Research
Financial position
The group has a strong financial position, with cash of £47.8mln as at September 30, and net cash of £40.3mln. After taking into account leases and acquisition liabilities, the total net cash position was £14.6mln, which is equivalent to 10% of net assets.
The group drew down £7.5mln on its revolving credit facility, because most of its cash is held in US dollars and funds were used for general corporate purposes including to pay the final dividend. The £7.5mln is expected to be repaid in the second half.
Financial position
Source: Company accounts
Valuation
The group is very cash generative and generates highly attractive returns on capital employed. On our estimates ROCE will be 35% in the current fiscal year. We conservatively estimate that cash conversion will be 70% going forward, though since the flotation on AIM in 2017 it has always exceeded this level with rates of more than 100% in the last four years.
Key investment ratios
Source: Company accounts and Proactive Research