Portfolio Update: Alpha Group & Big Technologies
Quite a busy week for two of my positions, one good, and the other not so good. Let’s start with the good.
Alpha Group International
Alpha Group International released its full year results for FY24. Performance was very strong, particularly given the current macroeconomic weakness and general uncertainty affecting the UK economy. Most of this performance was already priced in however, so there was little effect on the share price other than a short-term spike.
Some encouraging things for me have been the performance of the business under the new CEO, Clive Khan. Given the share price reaction to Morgan Tillbrook stepping down as CEO in September of last year, I think other investors shared my concerns that this might have had an adverse effect on the business. Current performance, albeit in the short term, seems to indicate that there will be little in the way of wholesale changes to the strategy. An interview with Khan that I read also talked about continuing the good work already done at the company and avoiding the temptation to change aspects of the business just to stamp his mark on the company.
The business seems to be relatively resistant to the vagaries of the economic cycle as well, which is encouraging. This is somewhat the result of the increasingly varied client base and something that should only strengthen over time. The other interesting aspect about the business is what it refers to internally as its ‘natural interest rate hedge’. This is essentially interest earned on client cash balances that are transitory in nature, often only held overnight. By aggregating large amounts of these client cash balances, the group is able to earn very attractive rates of return; £84mn in FY24 compared to £73.7mn in FY23. Given revenue was 135.6mn in FY24, this provides a significant countercyclical source of capital that they can then deploy during attractive periods, as in the case of their recent share repurchase.
The other encouraging aspect is the performance of the group’s recent acquisition of Cobase. Cobase is a platform that enables corporate and private market companies to manage all of their banking accounts and transactions through one portal. The business has performed well in its first full year of results with client numbers increasing by 59% and revenue by 70%.
Now for the bad…
Big Technologies PLC
Big Technologies released two updates last week. The first was on 18/03/25, stating that Sara Murray had been suspended in her role as CEO. The reason stated by the company in the RNS was:
“Owing to concerns in respect of Sara Murray's conduct which have recently become apparent in connection with the subject matter and conduct of the Litigation (defined below) following proactive steps taken, under the lead of Alexander Brennan, Interim Chairman of Big Technologies, the Company will undertake further investigations. Whilst those investigations are underway the Board has resolved to suspend Sara Murray from her role as Chief Executive Officer with immediate effect.”
This obviously did not provide much insight into what is actually going on. Darren Morris, current CFO, has taken over as interim CEO during this period.
The company then released another update 3 days later on 21/03/25, titled ‘Litigation Update’. This states that:
“The Company's further investigations have resulted in the Board becoming aware of information which means that the Company can no longer rely on the statement signed by Sara Murray on behalf of the Company in the Litigation, where that relates to her interests in, and relationship with, Zinc Limited, Monitoring Partners Limited, RCP Limited and Romelle Limited. Together, these four entities held ordinary shares in the Company ("BIG Shares") at the time of the Company's Admission to AIM on 28 July 2021 ("Admission") representing approximately 17.7% of the issued share capital of the Company at that time.”
This is a really concerning for the company who are currently being sued by a group of former Buddi investors (Buddi was acquired by Big Technologies in 2018). These investors claim that they were forced to sell their shares pre-IPO at supressed prices through the activation of a ‘drag along’ clause. This allows majority investors to force minority investors to join in the sale of the company, but it must be done at the same price and terms as any other seller.
These investors claim that the drag along clause was not valid because certain shareholders were offered shares in the new company, an option not afforded to other investors including them. They also claim that the ‘offshore shell companies’ that purchased their shares was owned and controlled by Sara Murray at the time. This, combined with the shares held under her own name, pushed her shareholdings to 58% of the issued capital. Well above the 10% she was claimed to own. They claim that this unofficial shareholding, combined with votes from investors that were offered shares in the newly formed BIG, allowed them to reach the 75% threshold required to enforce the drag along clause.
These investors are seeking an order from the courts for BIG to buy their shares in Buddi at a ‘price determined by the courts’ that represents a fair arms length transaction. We obviously don’t know what their shareholdings were in the early stage company, so it isn’t possible to work out the impact this will have on Big Technologies. For the time being though, the updates are concerning and indicate that there appears to be merit in the claims made by the former shareholders.
I actually intended to sell on hearing news that Sara Murray was being suspended, but unfortunately I had a meeting at the time. By the time the meeting was finished the share price had stabilised 20% below the start of the day and there seemed to be no point in selling anymore. This turned out to be wrong, given the ‘Litigation Update’ published three days later. However I have chosen to sit tight on this one given it is a relatively small position and I have already missed the opportunity to get out before the share price dropped substantially.