Foreign exchange and payments group Alpha FX (AFX:AIM) reported interim revenues 16% higher to £18 million for the period ended 30 June, while operating profits dipped 5% to £5.9 million after charging a £0.5 million provision. The shares gained 3.4% to 920p.

RESILIENT PERFORMANCE

The core UK market which represents two thirds of the business experienced some delays from clients during lockdown reflecting reduced trading activities and clarity around their hedging requirements. This resulted in a slight 1% fall in sales to £14.4 million.

The Alpha Payment Solutions (APS) division, which provides a suite of alternative banking solutions, including payments, collections and accounts, saw revenues increase from £0.2 million to £1.7 million in the period after showing consecutive quarterly growth and strong operating margins of 38%.

The division provides a recurring revenue stream and is sold as an integrated Software-as- a-service with the potential to become a material part of the overall business.

The institutional FX business, which serves UK and European clients from London, saw revenues increase 21% to £3.1 million in the period but down on the second half due to Covid-19.

PAYMENTS ON SCHEDULE

As previously announced the company has a repayment agreement in for a Norwegian client which wasn’t able to post the required collateral against a position in March due to increased currency volatility. The agreement runs to June 2022 and so far the repayments are running on schedule.

For accounting purposes Alpha FX has to book two non-cash provisions, one to reflect the difference between the nominal value and net present value of future payments ( £1 million) and one to reflect the probability of non-payment, £0.5 million, which is taken against operating profits. Both provisions reverse as the future cash payments are received, which means the full-year provision should be smaller.

At the period-end the company had £37 million of cash and £80 million in net assets which broker Liberum estimates is enough to ‘provide Alpha with sufficient collateral to deliver around £80m of revenue, or twice our current FY20 revenue forecast, as well as offering major firepower for customer acquisition or M&A’.

While management recognises ongoing uncertainty in relation to Covid-19 it said ‘in light of our recent performance and the diversity of our products and market opportunity, we are confident in the full year outcome.’

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Issue Date: 02 Sep 2020