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Alpha Financial Markets Consulting plc
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=== What are the key risks of investing in the company? === As with any investment, investing in Alpha FMC carries a level of risk. Overall, based on the Alpha FMC's adjusted beta (i.e. 1.139)<ref>Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, itβs best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For example, Supply@ME Capital's adjusted beta (5 years, monthly data) is 4.61, and is, accordingly, 561% above the market beta (of 1); assuming that a 'high' level of riskiness is 50% or more above the market beta, then the riskiness of investing in Supply@ME Captial is considered to be 'high' (561%>50%). For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. An argument can be made that the 2 years, weekly data can be especially appropriate in fast growing markets. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref>, the degree of risk associated with an investment in Alpha FMC is 'medium'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more/most accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to the company's ability (and willingness) to take the appropriate risk to maintain the growth of the business. ==== Risks relating to the group's business and the industry in which it operates ==== * Ability to retain key personnel and senior management * Low barriers to entry * Concentration of key customers * Revenue growth is partly reliant on attracting new personnel to expand existing services and lead new service offerings * Revenue growth is also reliant on ability to cross sell and up sell new services to existing clients and to win new clients * Revenue growth is sensitive to selling major and large scale projects * Ability to maintain quality of service and fulfil obligations on client contracts * Technological change and reliability * Geography * Currency and exchange rates * Regulatory environment * Training and risk management * Cash collection and bad debt * Funding and use of proceeds of the Placing * Macroeconomic conditions * Tax risks * Use of contractors * Utilisation rates of consultants * Relationships with technology platforms and service providers ==== Risks relating to the shares ==== * Share price volatility and liquidity * Investment risk * Dilution * Dividends may not be paid
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