A new software industry IPO (initial public offering) is on the cards with Alfa Financial Software set to float in June. Analysts speculate a market capitalisation of £800m or more. At that level the company would be catapulted into the FTSE 250 index at the following index reshuffle, with 23 FTSE 250 constituents currently trading at lower valuations.

Founded by executive chairman Andrew Page in 1990, Alfa provides an enterprise system for the asset and consumer finance industry. The platform provides new business and agreement management functionality as well as workflow and analytics capabilities.

Alfa has a global client base for its browser-based, Java-developed solution that includes Barclays (BARC), Bank of America, Mercedes-Benz and Toyota. Alfa has 10 offices worldwide with more than 250 staff.

New systems advantage

The world of asset finance may not sound terribly exciting yet there should be an opportunity for Alfa to develop and grow in this niche space.

That’s largely because of the continued dominance of legacy IT systems often developed in-house. With the demand for increased digitisation and new functionality, many of these systems are fast becoming outdated.

‘One of the key drivers of success is that Alfa is the only vendor with modern technology that also has deep domain expertise as well as a highly referenceable customer base globally,’ explains Rob Warensjo, of the Megabuyte software industry analysis boutique.

‘More significantly, perhaps, is how the company only seems to be scratching the surface of the market opportunity.’

Fast earnings growth

Figures revealed in the intention to float document highlight strong growth in the year to 31 December 2016. The numbers show revenue up 35% to £73.3m from which the company earned £32.8m of operating profit, itself up 46%.

Interestingly, Alfa remains financially robust enough not to require new funding. About 25% of the company is expected to be sold to investors, leaving founders and management firmly in control of the overall business.

This is a shot in the arm for the UK software sector which has seen little IPO activity of note during the past year or so. IT services and product reseller Softcat (SCT) was the last industry IPO of scale, floating at 240p per share in November 2015, for a £430m market value. Since then its share price has soared more than 80% to 435.7p for a rough £860m market cap.

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