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A niche software small cap to put on your radar

With great prospects, a market-leading position and solid cash margins, it's clear to see why private equity is interested in this tech stock
May 30, 2024

When Alfa Financial Software (ALFA) debuted on the London Stock Exchange in May 2017, its stock was both scarce and highly sought after. Around a third of the institutions that placed orders in the initial public offering (IPO) didn’t receive any shares – and fierce competition to acquire them quickly pushed the market cap above £1bn. This excitement was tempered after the group’s first set of annual results said a weakening dollar would constrain next year’s sales growth. 

IC TIP: Buy
Tip style
Growth
Risk rating
Medium
Timescale
Medium Term
Bull points
  • Successful move to subscription model
  • High margin
  • Very cash generative
  • Potential buyout target
Bear points
  • Limited liquidity  
  • Premium valuation

Any residual enthusiasm was extinguished when Alfa put out a shock profit warning in June 2018 following delays to some important customer contracts. The shares currently trade on about a third of their post-IPO peak. But this isn’t a story about a frothy tech listing that failed to live up to investor expectations. In the past few years, Alfa has upgraded its customer offering and quietly established itself as a leader in a niche market. Now, with buyout interest building, it is time to reexamine its credentials.

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