It was back in August of 2021 when I first took a look here at Alpha Financial Management Consulting (AFM), the shares then standing at £3.54p against my entry point of circa £3.38p.
Since then, the company has performed extremely well, having delivered a number of upgrades to the market, which culminated in the shares briefly flirting with £5.00 per share plus, before easing back.
As of today, the stock sits at £4.05p valuing the business at £485m, following the recent delivery of what were excellent full year results.
AFM is a high-end specialist provider of consultancy and associated services to the vast asset and wealth management sectors along with more recently large Insurance and pension providers.
The business is a global one too with many of its contracts delivering complex solutions in an ever changing and evolving financial landscape which makes for significant growth potential.
The company to date has worked with all of the World's top 20 and 80% of the World's top 50 asset managers by assets under management (AUM) alongside a wide ranging other buy-side businesses.
In order to hear more on the story and future direction I have been fortunate enough to catch up with management, which is a real positive, given that AFM is still somewhat very much under the private investor radar and has received limited coverage to date.
First though, it is worth just taking a look at the numbers delivered in the recently announced results for full year 2023 which saw double-digit organic growth achieved across all of its regions.
What was particularly pleasing was that the numbers actually came out ahead of guidance which had already previously seen upgrades, thus underlining an impressive performance.
Net cash which was already strong and positive also emerged £10m higher than anticipated at £59.2m.
On the numbers front, revenue hit £227m against the previous year’s £157.8m with pre-tax profits coming through at £46.3m which returned eps of 29.3p, that sees the shares trading on a PE of 13.
On the day of the results the shares actually fell from the then £4.90p to around current levels as the company spoke of a higher degree of competition and a lengthening sales cycle.
In the current stock market bear climate, any hint of caution is likely to impact upon the share price and AFM was no exception, although on a personal level, I saw the fall as overdone and decided to add to my position.
Interestingly, and perhaps more telling was the company’s decision to up the dividend and impressively so too, moving from 10.4p to 14.2p per share, which equates to a pretty reasonable yield which accompanies the key growth element.
Looking ahead to the current year, the company stated that it is trading in-line with expectations which sees Investec forecasting 2024 revenue of £244m with pre-tax profits at £46.3p along with an anticipation of another hike in the dividend to 15.6p per share.
Overall, the outlook suggests tempered but still positive mid-single digit organic sales CAGRe to FY25. Coming off organic growth of 30%+ (FY22 and FY23).
Importantly, the broker sees this as beatable, given the strengthening of Alpha’s proposition by last month’s acquisition of APAC consultancy Shoreline, creating the leading specialist AWM consulting firm in the region. It goes on to say that the unchanged forecasts are conservative, even in a weakening macro environment.
Speaking with both CEO Luc Baqué and CFO John Paton there is clearly a firm belief in a continuation of growth, with both the organic element and further acquisitions collectively playing their parts.
At the outset, Paton talks me through the history of the UK headquartered business, explaining that in recent years it has doubled in size and subsequently doubled again.
Revenues have gone from £66m in 2018 to the current level representing an impressive CAGR of 28% where Paton adds that the plan is very much to double the business again.
One of the keys to AFM’s ongoing success is very much within its people, where the CFO says that not only do they hire the very best, they also ensure that they retain them too.
Speaking on its markets Paton comments, “We are very much focused on Financial Services along with Asset Management that has been our heritage business over most of our journey and now we have recently moved into Insurance”.
He also stresses that the company has specialists operating in specific niche areas it serves which results in their delivering the very highest quality of advice and services to their extensive list of clients.
Serving top players across the globe, AFM assists in ensuring that projects and budgets related to hundreds of billions of assets are delivered effectively and on time.
“We really invest in our people, who stay with us ensuring we develop the business where we foster a very good culture and that has seen us taking market share over the years” Paton adds.
AFM also enjoys a strong level of repeat business which having grown Internationally has held it in good stead and where in the context of the recent results the CFO emphasises that they have grown particularly strong in N. America with real momentum there.
In relation to that significant region, Paton points to Lionpoint, which was a major acquisition back in May of 2021 where it has assisted in AFM doubling its footprint in the region.
It has also brought about what he describes as valuable synergies to other aspects of the business which he says have gone tremendously well.
Insurance as mentioned earlier is a relatively new aspect and area of business for AFM where the CFO talks of a similar threshold around reducing the cost base and improving technology, which is where the company excels in providing services and solutions/advice.
It is, he adds, a substantial market where he believes that AFM can replicate the success of its other areas of business and the headcount here has quickly moved from nil at the standing start to over eighty people today.
Importantly he sees that business in its own right as having a long runway, not least as it enjoys the same kind of consultancy spend globally as the Asset/Wealth Management space.
Consultancy services provided across the business are extensive and often substantial, from large multi-year projects taking in the likes of front office systems to outsourcing back offices or custodian arrangements. Other areas include regulatory compliance and various mission critical operations.
As a result, much of what the company provides is particularly essential for the client’s medium-term plans, so in an ever changing and evolving digital world, AFM’s services look likely to enjoy continued and growing uptake.
CEO Baqué, stresses the extensiveness of the business serving financial offices across the world, whilst echoing that N. America is AFM’s biggest region.
Adding some further colour to the company’s services, he points to a scenario where the likes of a large Financial Asset Manager may experience specific challenges in its operations.
This typically may revolve around the evolving or switching to a new aspect of business that may involve extensive new software and systems, all being complicated stuff.
In such a case, AFM’s expertise is deployed, where team members will design and develop the right model by liaising with the client which then ensures the selection of the best system to meet their needs and requirements.
That may incorporate moving to a whole new operating model, which requires specific expertise and skills that any one Financial Institution or services provider just doesn’t have.
With many layers and facets to its own operations Baqué says that much of what it provides is sticky as once the company becomes engaged with a client, the retention and return rate is high.
Looking ahead to the medium-longer term path for growth acceleration, acquisitions are likely to continue to feature and the CEO expands on this area, commencing with its most recent purchase of Australian based Shoreline.
This was announced back in May of this year which saw AFM paying an initial £4.2m in cash to be followed by specific performance-earn-out driven payments.
“Shoreline was a small acquisition for us, where we are talking about 18-20 people involved” says the CEO. He goes on to say that they actually knew Shoreline really well as it was a competitor in their space, being very domestically focused but with a premier offering.
As a competitor there were what Baqué describes as clear similarities in the way both operate and their ethos, which made absolute sense for the two parties to come together.
With a clear goal to double the business again by 2028, I hear more on that bolt-on-buy strategy, where the CEO emphasises that they are aware of other companies getting in wrong resulting in destruction for shareholders.
To this end and with a proven track record to back up his words, Baqué says that they are super selective with the criteria, including the multiples paid.
Additionally, would-be purchases need to have the right goals and culture aligned to AFM, which appears to be a prerequisite in the criteria laid out to ensure speedy and successful implementation.
Given the strong and solid net cash position AFM has the firepower to further execute on this front, whilst also accelerating the progressive dividend as profits continue to grow.
CFO Paton says that there is a strong commitment to paying and growing the dividend where it currently releases 50% of the cash profits to shareholders.
This was previously put in place by the board on coming to the market and is what he deems as being a reasonably generous policy which he also sees as continuing to progress.
With a solid balance sheet and operating in a somewhat fragmented market with plenty of growth opportunities AFM is a stock that I am very comfortable holding for the longer term.
There are some big and impressive names on the share register that have bought into the story, including Aberdeen, Investec, Janus Henderson, Gresham and NFU Mutual, which arguably suggests confidence behind the growth strategy.
In terms of its performance to date, AFM has been very much in the mould of under promising and over delivering which is clearly welcomed by investors.
Although there are clearly a few near term headwinds as wisely pointed out by the company, the reaffirmation of meeting full year expectations coupled with a healthy pipeline of opportunities along with the increased dividend are reassuring factors for me.
Investec actually raised its target price to £6.72p per share on covering the results, whilst Berenberg which also covers the stock increased its own target to £5.80p.
Like Investec, it sees upside risk to its current forecasts as the year progresses, given the strong pipeline of new business that exists.
As an aside, Stockopedia views AFM as a High Flyer, citing positives such as a PEG of 0.5 along with qualifying in a best dividend screen.
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