Alpha Group: Amazing Compounder Experiencing Temporary Trouble
It is time to revisit this amazing company
Alpha Group: Revisiting the Company
I previously published a report on Alpha Group—one of the first ones I ever wrote. If you're new to the newsletter, I highly recommend reading it first to get the full picture. I'll also share a link to the thesis my good friend James wrote about the company.
https://smallcaptreasures.substack.com/p/alpha-group-international-high-growth
My thesis is much shorter while James digs deeper into the company.
Alpha Group remains, by far, one of the best companies I have ever researched. It boasts a stellar management team, a strong corporate culture, tremendous growth potential, and an incredible market into which it can expand. However, the company has recently faced some short-term challenges that have caused its stock price to decline significantly. This makes the current opportunity better than ever—it's time to revisit the company.
The Challenges
Alpha Group's stock price has declined sharply due to two main reasons:
CEO Transition
The company's founder, a pivotal figure in its past success, announced his succession plan, leading to a substantial dip in the share price. Morgan Tillbrook will step down as CEO at the beginning of 2025, with Clive Ian Kahn set to take over.
While the market reacted negatively, this transition may not be as problematic as it seems. Clive brings over 30 years of experience in financial services, particularly in FX and payments. His track record includes roles as CFO and CEO of Travelex, a global foreign exchange company, and CEO of Cardsave, a credit card acceptance and payment solutions provider. Clearly, he is well-prepared for this role.
Furthermore, Clive has publicly committed to substantially increasing his stake in the company and has already been capitalizing on the share price drop. The founder, meanwhile, has agreed to lock up his shares for three more years and has also purchased additional shares during the downturn.
Interest Rate Concerns
Alpha Group derives a significant portion of its profits from nearly 100% net margin income on client balances in its ABS segment. The market fears that as interest rates decline, the company’s profits will shrink, leading to its shares being valued at a P/E ratio of around 11. This is absurd given the company’s clear path to double-digit growth in both revenue and earnings.
Management has consistently reiterated that any decrease in interest income will be offset by higher earnings from operations. Once this is demonstrated, the market is likely to reassess the company's valuation and remove these concerns.
The Opportunity
Despite these challenges, Alpha Group has continued to execute flawlessly. Institutions and insiders alike have been taking advantage of the share price decline. During this downturn, a major investor acquired a 5% stake in the company, and both the current and former CEOs have made substantial purchases as well.
Alpha Group remains an extraordinary business, and opportunities to buy companies of this caliber at such low valuations are rare. Like Eminem would have said if you had one moment one opportunity would you capture it or just let it slip. This is the moment where we have to be greedy while others are fearful.
Stay tuned for more updates as we continue to monitor this remarkable company.
Disclaimer:
The information provided in this article is for informational purposes only and should not be considered financial advice. The content does not constitute a recommendation to buy, sell, or hold any security or investment. Always do your own research and consult with a professional financial advisor before making any investment decisions. Investing in stocks involves risk, including the potential loss of principal. Past performance is not indicative of future results.