Is Alpha Growth worth a look following post-placing dip?
Since listing at 2p a share in December, financial services specialist Alpha Growth has enjoyed a warm reception in the market, hitting highs of 4.7p before falling to its current 2.9p following a placing in September. Here, we review the steps the firm has taken to establish its life settlement-focused investing strategy, before looking at where its shares could go next.
As mentioned, Alpha focuses on investing in A-rated senior life settlements to provide institutional investors with attractive long-term yields and returns uncorrelated to conventional equity and commodity markets. The business believes it has an opportunity to become the dominant player in the expanding alternative asset class because the area is currently so fragmented.
Its strategy to achieve this is to expand its advisory and services through acquisitions and joint ventures in the UK and the US. By doing this, it hopes to reach commerciality and provide ‘wholistic’ solutions to alternative institutional investors looking for assistance and access to longevity assets.
Alpha has wasted no time launching into its strategy since entering the market last December. Indeed, one day after listing, it revealed its first contract – a mandate to manage the allocation of the investment capital raised through a bond offering from a ‘leading, specialist American private wealth and asset manager’. The bond was expected to raise €15m, which Alpha said it would use to invest in and trade US senior life settlements while generating revenue through an annual management fee and related performance fees.
Fast forward to February this year, and Alpha announced the launch of a debt-equity hybrid investment called the ‘High Yield Return Security’. It plans to offer the security – marketed as providing diversity and safety in return – to a range of investors and insurers with annuity-like cash flows and asset-backed security allocations. The firm said the product meets a need among institutional investors for a product with minimal impact on their regulatory capital requirements while providing predictable, attractive and minimally-correlated returns.
Then, in June, Alpha retained the services of placement agent Devonshire Warwickshire to raise assets for its investment strategy among its various family office, high-net-worth, and ultra-high-net-worth clients. The news led its shares to jump 9.9pc.
Finally, in July, the company announced that it had acquired a British Virgin Islands-listed entity called Alpha Longevity Limited (ALM) for the princely sum of £1. ALM – which was established by Alpha’s chief executive Gobind Sahney – holds an investment business licence allowing it to arrange, advice, and manage investments to investors in the British Virgin Islands. In a claim likely to enrage ‘The Sun’ readers Britain-wide, Alpha said the acquisition will be ‘beneficial for the tax structuring of the company’s operations going forward’. However, the truth is that a domicile in a tax-friendly jurisdiction is not an unusual step at all for a financial services enterprise to take.
After getting its house in order and setting up several initial deals, Alpha announced in September that it would raise £400,000 at 2p per share, a slight discount to the 2.25p it was sitting at in the previous day’s trading. It said the money will be used to accelerate the expansion of its acquisition of ALM, allowing it to secure certain service contracts that will strengthen its market position, product offering and investor relevance. Despite this, the placing – revealed alongside the news that Sigma Broking had cut its stake from 15pc to 5.1pc – led shares to fall by 22pc.
Despite remaining well below highs of 4.7p, at 2.8p, Alpha’s shares sit considerably above their last placing price. So, is it worth a look?
First of all, the company’s esoteric focus on life settlements could scare off even the most hardened junior resources investor. Realistically, however, such investments tactics have been employed for years, and with a little digging on Google, you are likely to find as many success stories as you are disasters.
Life settlement investing has demonstrated success in the past and seems to provide an effective way of getting exposure to the ongoing trend of ageing populations across many developed nations. Given the current weakness in equity and bond markets around the world, these points could welcome in some more interest moving forward.
That being said, the UK’s Financial Conduct Authority once famously dismissed the investment style as ‘toxic’. The regulator’s exclamation led a popular vehicle in the sector called the EEA Life Settlements fund to suspend redemptions, as panicked investors headed for the exit, fearing they had been mis-sold an investment.
If this does not put you off, however, then Alpha has the backing of a strong management team in the sector. It is also worth mentioning that the fund describes itself as being focused on ‘longevity assets’ rather than life settlements alone. Chief executive Sahney is a veteran of distressed assets, while COO Danny Swick – who joined in June – founded a longevity asset class-focused business called Kango for private equity and hedge fund clients.
What’s more, the company’s board have plenty of skin in the game (at least they did on 19/12/2017, the date of the last shareholders register on Alpha’s website). At that point, Sahney owned a 6.3pc stake in the firm, while fellow board members Rory Heier and Andrew Dennan each owned a 5.6pc position.
With cash in the bank and management teasing imminent deals, the drop in Alpha’s share price could be an exciting entry point for those who are au fait with the firm, the sector, and the prospects of both. However, until some more deals and progress are announced, it may be best to think twice before betting your life on this one if you are currently unsure on whether to make a move.
Danny Swick the newly appointed Chief Operating Officer and Director of Alpha Growth