Numis begins coverage of Argentex with an ‘add’ rating


Argentex Group PLC (LON:AGFX) shares were given a leg up after Numis initiated coverage of the recently-floated stock with an ‘add’ recommendation and target price of 150p.

The broker said Argentex, which supplies foreign exchange services to small and medium-sized enterprises, is a “high margin, high return, growth business”.

Argentex began trading on the AIM market of the London Stock Exchange in June with an issue price of 106p, raising £10.5mln net of expenses. The shares are now trading at 139p each.

Last year Argentex’s operating profit jumped 51.4% on an operating margin of 41.8% and revenue gained 43% to £10.6mln.

Numis pointed out that FX trading is dominated by the large banks, which tend to offer customers a “poor price” with “worse customer service”.

“Consequently, Argentex has been able to win market share in what we believe to be a very substantial and growing market place,” it said.

“We estimate that Argentex has a market share, of what we estimate is its addressable market of 3.1% to 6.2%, up from our estimate of 2.5-5.1% of its market share last year.”

Argentex currently generates 72% of its revenue from UK clients, with the other 28% coming from the rest of the world. However, the company is expanding into options and Numis sees the potential for international trades to grow.

It added: “The company guides to slower, but still very attractive, revenue growth of low to mid-thirties percent, on a three-year compound annual growth rate (CAGR) basis, we forecast a 31% profit CAGR.”

Numis said Argentex has the highest return on equity of any of the balance sheet businesses that it covers. The return on average equity is expected to be 64.5% after the impact of initial public offering capital.

Unlike the rest of the sector, Numis reckons Argentex has almost no market or macro-economic risk.

“Its service reduces the operating risk profile of its customers. Argentex is very well diversified by customer and geography. We believe Argentex has little regulatory risk compared to the rest of the sector.”

In afternoon trading, shares in Argentex rose 2.2% to 139p.

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