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magazineAlfa by name and performance
We’re on a decent run of high-quality software businesses of reasonable scale joining the London market. Firms like FDM (FDM), Kainos (KNOS), Sophos (SOPH) and Softcat (SCT) spring to mind. Alfa Financial (ALFA) might just be the pick of the lot.
Floating on 1 June at 325p, investors have fallen over themselves to buy stakes, sending the share price soaring to 482.75p. Even so, we believe there is reliable, long-run mid-teens growth or better on offer, something we think the market will continue to pay a hefty premium for.
OPERATES IN A UNIQUE NICHE
Founded by executive chairman Andrew Page in 1990, Alfa provides an enterprise system for the asset and consumer finance industry. The platform provides new business and agreement management functionality as well as workflow and analytics capabilities.
Alfa has a global client base for its browser-based, Java-developed solution that includes heavyweight financial institutions such as Barclays (BARC), Bank of America and Commonwealth Bank of Australia, plus the finance arms of manufacturing giants like Mercedes-Benz, Siemens and Toyota. Alfa has 10 offices worldwide with over 250 staff.
The world of asset finance may sound dull but the opportunity for Alfa to develop and grow into this niche space certainly is not. That’s largely because of the continued dominance of legacy IT systems often developed by large organisations inhouse. With the demand for increased digitisation and new functionality, many of these systems are fast becoming outdated.
This implies a large number of big businesses increasingly open to the idea of outsourcing to Alfa’s best in class suite of tools. Rob Warensjo, of the Megabuyte software industry analysis boutique, believes that the company has only scratched the surface of the market opportunity to date. That Alfa raised no new money at the IPO shows that future growth is very likely to be self-funded.
STRONG FINANCIALS
Figures revealed in the intention to float document highlighted strong growth in the year to 31 December 2016, with revenues up 35% to £73.3m. From that the company earned £32.8m of operating profit, itself up 46%.
According to Reuters, forecasts revenues will hit £86.1m in 2017 and about £100m next year, implying £40.7m and £47.3m of pre-tax profit respectively. The shares are expensive, on a rough 2018 price to earnings multiple of 39.5, but we think this will continue to be justified by growth.
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