Is Argentex (LON:AGFX) Poised For A Breakout?

28th Jun '22 by Roland Head

4 comments 1734 reads

The last three months have seen UK markets drift lower. The mood music has been downbeat, but I think there are still some good opportunities out there for investors.

For my first article in this new format, I decided to look for UK shares that have outperformed the market and delivered positive returns in recent months. One company that caught my eye is foreign exchange broker £AGFX.

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AIM-listed Argentex provides foreign exchange services and advice for commercial clients. The company targets clients with annual FX turnover of between £1m and £500m and acts as a riskless principal FX broker. It only handles commercial transactions and does not engage in proprietary trading or currency speculation.

Argentex has been on my radar for a little while now, thanks to a trio of characteristics that I find very attractive.

1. Owner management

CEO Harry Adams and CFO Andrew Egan are co-founders and significant shareholders:

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2. An excellent set of quality scores

Argentex boasts excellent profitability figures, along with a cash-rich balance sheet:

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3. A potential bargain valuation

If the company can deliver on earnings growth forecasts, then the current valuation of eight times forecast earnings seems very modest to me for such a profitable business:

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However, the foreign exchange market is an increasingly competitive space. A number of young businesses are trying to muscle in on a market that’s historically been dominated by the big banks.

Despite its apparent progress, Argentex seems to have disappointed the market over the last couple of years, when compared to sector peers Alpha FX (LON:AFX) and £EQLS.

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Each of these companies have slightly different offerings, targeting different niches. But in all three cases the majority of their revenue comes from helping corporate clients manage foreign exchange transactions.

The market seems to have prized revenue growth ahead of profitability. While I think that Alpha FX probably deserves its premium valuation, it’s not clear to me why Argentex should be so much cheaper than hitherto loss-making Equals:

Company	5yr revenue growth	TTM operating margin	Rolling P/E
AlphaFX	55.7%	43%	26x
Equals	34%	-7.6%	16x
Argentex	27.5%	26.8%	8x

Argentex’s results for the 12 months to 31 March are due on 6 July. Ahead of these figures, I’ve been taking a closer look at the business to try and understand…

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topvest

28th Jun '22

I would agree - thanks for the summary. I have been a holder for a while and the share price performance has been negative due to disappointing the market on growth and one of the two founders leaving and selling his shares. I was originally attracted to this due to Pacific Investments and Beckwith family being a founder shareholder and they still hold c22%. They have a good track record on backing quality financial companies. Anyway, much depends on next week's results. The shares are well positioned chart and valuation wise for a re-rating if the forward news is positive.

Nothingventured

I’ve been in for a year and thought this a more defensive stock than some of the more high growth competition.

Revs8

Hi Roland,

Good food for thought thank you. I have been watching Argentex (LON:AGFX) for a while but haven't invested.

Your article prompted me to revisit my charts. The SP is now near the top of its falling channel. RSI is near the bottom of a rising channel so has room for a breakout above 83p. However, the overall chart pattern looks very much like consolidation after the long decline since June 2021. Therefore the SP could break downwards revisiting 67p.

I guess the next SP move will depend on how the market perceives the results on 6th July. (to state the obvious). Which coincides with the point of the consolidation flag.

Given the way the market is treating in-line news I am concerned that anything except "very good" news could result in a break to the downside.

I'm going to wait for the results and I'll be pleased for investors if the news is very good.

JCPr

29th Jun '22

I've built up a holding over the last 15 months, so am sitting at a paper loss. Naturally I agree that they are cheap. A huge factor in the share price performance over that period (in my opinion) has been the departure of the former co-CEO Carl Jani. I considered him the more impressive of the leaders of the company but he departed quite suddenly, due to illness. However he sold out his holding at quite a discount to the then market price. There also seemed to be a reduction of experienced staff about the same time, so I did wonder if he'd taken some of them with him. The share price seems to have developed some resilience during market dips in the last few weeks but perhaps I'm just being over-optimistic having watched the price drift down over the last 12-15 months.

Is Argentex (LON:AGFX) poised for a breakout?

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Roland Head

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