Analysts following Alpha Financial Markets Consulting PLC (LON:AFM) are agreed its performance since lockdown has been “resilient”. In fact, it has probably been better than that.

However, it is moot whether this resilience is reflected in the share price, which has tended to be an unreliable forward indicator during this tumultuous period for world markets.

A robust global pipeline, strong sales momentum and a good win rate all mark out Alpha as a hidden gem.

Founded in 2003, the company provides specialist consultancy services to the asset and wealth management world, as well as third-party administrators. It has worked with most of the industry’s big names.

Global footprint

It employs 438 consultants across twelve major cities globally focusing on around 14 service lines “from short strategy consultations to longer-term IT implementations”, says John Paton, chief financial officer.

The main competition tends to be the recognised global consultancy firms.

“Rather than being a generalist like the Big Six, our people and the teams have huge knowledge within the asset management space,” explains Paton.

“We might have done a project like a platform migration multiple times before, so we actually know how to do it in the most effective and efficient way possible. That knowledge is hugely important; as important sometimes as price.” 

The drive for greater efficiency in the asset management world with the rise of low-cost trackers and exchange-traded funds (ETFs) provides a strong flow of business as does designing and delivering new platforms as well as migrating customers onto them.

Outsourcing and mergers and acquisitions (think Aberdeen-Standard for the latter) also provide significant new business for Alpha. 

Expanding into new areas 

It is branching into new areas too. It opened an ETF practice 18 months ago, is involved in ‘reg-tech’ (regulation technology) and has created a new ‘vertical’ targeting the insurance sector.

The latter has many similarities with the company’s existing marketplace as well as plenty of cross-selling opportunities. There is a “very natural adjacency”, says Paton.

The last financial results – the interims released in late November – reveal how well Alpha weathered the worst of the pandemic.

Revenues grew by around 10% to £47.6mln, while underlying earnings (adjusted EBITDA) were up 6.1% to £10.1mln.

Eye-catching was the cash balance of £32.5mln (as at September 30), up £12.5mln from six months earlier. 

Healthy balance sheet

The cash conversion for the period (the proportion of profit converted into cash flow) was 177.5%. While the number was flattered by some ‘one-offs’, the underlying figure was around 100%, Paton says, and has been around that level over the “last few years”.

A healthy balance sheet meant Alpha was able to restore the dividend after taking an early and prudent decision to hold the pay-out towards the start of lockdown.

There were a few uncertain months as the world changed in late March, but by summer the group was on an even keel, Paton reveals.

“We saw a couple of smaller projects cancelled in the depths of March,” he adds.

“All the other projects transferred seamlessly to remote work and through the summer things really came back strongly.”

Growth opportunities 

Longer-term it has identified two major growth opportunities – the insurance market (particularly pensions and retail investment), and North America.

Of the latter, Paton says: “It about six or seven times the size [of the UK] in terms of assets under management, but we have a team of about a third of the size of the UK.”

Alongside this, the group will continue to make acquisitions. “They may be complementary, or ones that offer different skill sets to what we have in-house,” explains Paton.

The re-assuring interim report appears to have acted as a catalyst for the share price, which has advanced by 11% since late November. 

That said, Alpha’s value has only just recovered to where it was a year ago and has some further headroom if it is to hit analysts’ price targets of between 280p-350p a share.

According to Andrew Gibb of N+1 Singer, there appears to be a rather hazy/lazy understanding of the business model in some quarters that may be acting as a drag on the valuation.

“We continue to believe the market is focused far too heavily on the outlook for assets under management and viewing this as a cyclical consultant with limited recurring revenue and in our view, this is detracting from the resilience of the model,” he said in a note to clients. 

Structural drivers

He added that the structural growth drivers such as the aforementioned industry cost pressures and regulatory burden remain. Meanwhile, the long-term savings industry is far from in terminal decline.

Paton echoes Gibb’s point on Alpha’s revenue base: “We have a very strong repeat client business. While we are a project business with over 80% of our new business we will have worked with the clients in the last few years,” he explains.

“Because of the skill set, knowledge and the people, they [clients] do come back to us.”

As Alpha has shown, it is a business for all seasons, or should we say all market conditions.