Shares in UK FinTech company Alpha FX (LSE: AFX) are on fire at the moment. Over the last month, Alpha FX’s share price has risen 33%. Meanwhile, over the last year, it’s surged 143%.
Here, I’m going to look at what’s driving the AFX share price higher at the moment. I’m also going to discuss how I’m going to play the price rise as an owner of the stock.
Excellent H1 results
The explosive share price gains here recently appear to be the result of the company’s first-half 2021 results (posted 1 September), which were very good.
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For the period, Alpha FX generated revenue of £34.2m, up a huge 90% year-on-year, with revenue in the Alternative Banking segment surging 600% to £9.5m. Meanwhile, underlying H1 basic earnings per share came in at 27.9p, up a whopping 194% on the 9.5p posted in H1 2020.
As a result of this strong performance, the company proposed an interim dividend of 3p per share (H1 2020: 0p).
Encouragingly, AFX said its momentum from the first half had continued into H2 and that trading had continued to be strong with healthy demand for its services from both existing and new clients.
AFX share price target raised
It’s worth noting that, on the back of these excellent results, analysts at Liberum hiked their share price target for AFX from 1,800p to 2,000p.
“These results clearly demonstrate the group’s ability to expand rapidly and profitably into new areas and geographies, and deliver to plan,” analysts at Liberum wrote. “We expect Alpha FX to continue to successfully expand the scope of its business in future periods as well,” they added.
AFX shares: my move now
In terms of my move now, as an owner of the stock, I’m going to hold on in the pursuit of further long-term gains. And if the stock pulls back, I may buy more.
Looking at the valuation, I don’t think AFX is that expensive, even after the recent share price rise. Currently, the consensus earnings per share forecast for this year is 47.1p. However, that seems too low, given that the company generated EPS of 27.9p in H1. So, I’m going to go with an EPS estimate of 50p for this year. That would put AFX on a forward-looking P/E ratio of around 46.
In my view, that doesn’t seem high considering:
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AFX has a very consistent growth track record.
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Revenues in the Alternative Payments segment are booming (600% growth in H1).
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The company is very profitable (three-year average ROCE of 19.5%) and has no debt.
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The company’s led by founder Morgan Tillbrook who’s clearly very driven and ambitious.
So I see no reason to sell the stock just yet.
Of course, after the recent share price surge, there’s always the chance the stock could experience a pullback. This wouldn’t surprise me at all. There are other risks to consider too. For example, growth could slow and this could impact the share price.
Overall however, I remain very bullish on AFX shares. I’ll be holding onto my shares as I believe this UK company’s still in its early stages.
