Alfa Financial a 'sell' for Berenberg following disappointing update

Analysts at Berenberg downgraded Alfa Financial Software to 'sell' on Thursday, highlighting several risks to the firm's guidance following its first-half results.

Berenberg said Alfa, which floated in London last year, had "disappointed the market for the third time in 2018", noting that smaller average revenues for its implementation projects next year, in addition to a loss of customers in its "supposedly recurring" maintenance business had led it to reduce its estimates by roughly 14%.

However, Berenberg went as far as to say that with the possible re-start of a large contract unlikely to have any material impact next year, the broker said its estimates could be at risk by "at least" 25%.

The analysts said the correction of Alfa's core issue, the pausing of a particularly large software implementation project, could provide a catalyst for future estimates and restore confidence.

However, while this was cited as a possibility by Alfa, management indicated to the broker in its conference call that if it did re-start, revenues would build at a "much slower pace than originally estimated".

Alfa, which supplies software to banks and companies that provide asset finance, floated at 325p in a June 2017 IPO that was 10 times oversubscribed and made £254m for its controlling shareholders, CEO Andrew Denton and executive chairman and co-founder Andrew Page, who together still hold a 68.4% stake in the company. The tightly held shares topped 530p in January before losing more than two thirds of that value since, with a fall to below 140p on the back of results.

In addition to the switch from 'hold' to 'sell' Berenberg, which forecasts £72m of revenue for Alfa next year, lowered its target price on the group from 170p to 115p.