Big banks such as Barclays listed on the London stock market have been frustrating investments for many in recent years. Their characteristics include persistent low-looking valuations, share prices going nowhere, and ongoing potential that never seems to be fulfilled.
Impressive figures
I’d dump Barclays and the other banks and invest in vibrant firms in the wider financial sector such as Alpha Financial Markets Consulting (LSE: AFM). The company provides consultancy services to the asset and wealth management industry worldwide.
Today’s full-year figures are impressive. Revenue increased by just over 15% compared to the previous year and adjusted earnings per share jumped up 23%. The directors moved the total dividend for the year a little over 16% higher in a show of confidence.
Chairman Ken Fry explained in the report that the directors think the structural drivers in the asset and wealth management industry include pressure on fees, increase in assets under management and regulatory change. Alpha is “well placed to adapt to its clients’ evolving needs and to deliver ongoing growth,” Fry reckons, despite current “geopolitical uncertainty.”
During the period, Alpha increased its client count by almost 16% to 279 and opened its first office in the “German-speaking” market, in Zurich. There are now 10 offices around the world. Other highlights include the launching of two new business practices in FinTech & Innovation and ETF & Indexing. Meanwhile, the firm’s consultant-count grew by 19% to 362.
Acquisitive and organic growth
Alpha is pursuing a bolt-on acquisition programme on top of driving organic growth, which is a well-trodden route to expansion. I think it’s a good idea to attack growth on two fronts like that. Acquisitions bring “new products and recurring revenue to the business” Alpha points out. Emboldened by the first acquisition in 2017 of TrackTwo, which has integrated well, the directors have been on the hunt for more and today announced the acquisition of Axxsys.
The acquisition will start to increase Alpha’s earnings straight away by extending the service offering to cover the SimCorp platform, which is an “integrated front-to-back portfolio management system.” The directors expect a cross-selling opportunity, and Alpha’s geographic footprint is widened by the acquisition, which has strong trading in the Nordic regions and Canada.
A healthy balance sheet
Alpha first arrived on the stock market in October 2017 and since then has been posting double-digit percentage annual increases in revenue, earnings and the dividend. City analysts following the firm expect such growth to continue, and I find today’s organic expansion figures and the news on acquisitions to be encouraging.
There’s no debt on the balance sheet and a healthy net cash position of around £18.5m. Meanwhile, with the share price close to 238p, the forward-looking price-to-earnings rating for the trading year to March 2020 is close to 17.5 and the anticipated dividend yield is just over 2.7%. I think Alpha deserves its full-looking valuation and I’m tempted to pick up a few of the shares to see what happens.
