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Asset finance is big business. In the UK alone, more than £65billion has been lent to customers to purchase specific items, while global spending exceeds £1trillion.
Cars are the most popular item bought in this way but the industry spans an extensive range of goods, from fridges to dishwashers and aeroplanes to combine harvesters.
Banks like this type of lending because it is backed by real stuff, which they can repossess if need be.
Manufacturers are keen on asset finance, as it allows customers to buy goods they might be unable to purchase outright. And there are many specialist firms who focus on the asset-backed finance market too.
Alfa Financial Software provides all these lenders with top-notch software that helps them to offer finance swiftly and smoothly, from the moment a would-be borrower asks for money to the time they have paid off the loan.
The London-based company is a leader in its field, one of the very few firms whose software can be used for all types of assets, by all types of lenders in every part of the world. The business is growing fast, highly respected and conservatively managed. But Alfa Financial Software shares have underperformed.
Priced at £3.25 when the business was floated in 2017, the stock has had a rollercoaster ride since then, and now trades at just £1.59.
This fall seems undeserved. Recent results have been robust, customers are loyal and a number of big lenders are knocking at Alfa's door, keen to access its technology.
Last month, the group revealed a 20 per cent increase in first quarter sales to £27million, with chief executive Andrew Denton expressing confidence in the future.
Analysts are forecasting that full-year revenues will be up 7 per cent to more than £100million, while profits are expected to be level with last year's, at £29million, reflecting heavy investment in the business.
Unusually for a technology company, Alfa pays dividends, frequently opting for a small ordinary dividend supplemented by special payouts. Total dividends for 2022 amounted to 9.2p, including 8p of specials.
This year, a 1.3p ordinary dividend is predicted but more specials may be on the cards, as Denton is keen to reward shareholders whenever the group's cash position allows.
A software engineer by training, Denton joined Alfa back in the 1990s and has worked in almost every part of the business, before taking the helm in 2016. The group has grown substantially under his stewardship but there is plenty more to come.
Asset finance software is a sizeable industry in its own right, valued at £2.7billion, and it is forecast to double in size by 2030. Alfa has less than 4 per cent of this market, despite being a top player, but the bigger it grows, the more attention it attracts.
Many operators in the asset finance market rely on outmoded, cumbersome technology that is expensive to run and hard to update. Alfa's software is agile so it can be adapted to businesses' changing needs and circumstances. And they are changing.
One lorry manufacturer now sends mileage data directly to Alfa so customers are only billed for the amount their lorries are driven. A boon for owners, this type of financing will almost certainly be rolled out more widely across the commercial and agricultural sectors.
Car makers are also experimenting with technology, including add-ons that can be charged for when used, such as heated seats during cold spells or extra horse power at the weekend.
Some investors worry that asset finance markets will suffer as businesses and consumers wrestle with rising interest rates and increased costs. But the data suggests otherwise.
Alfa's customers span many countries and industries too, so even if there is a dip in one area, others can make up the difference.
Today, the group has 32 customers and derives a third of its revenues from America with a growing percentage from other parts of the world as well. Four major new customers are expected to join the roster soon, while another six are in advanced negotiations with Denton and his team.
The company has no debt, hence the ability to pay generous dividends to shareholders. And employees are loyal, unusual in the fast-moving technology sector and a testimony to Denton's leadership.
Midas verdict: Alfa has grown and developed in recent years but the stock has lagged behind. At £1.59, the shares offer real potential – and the dividends add further spice. Buy.