Looking over the gloomy first half of 2020, peer-to-peer lending platform Funding Circle (FCH) can legitimately point to some successes. While loan originations understandably cratered in March and April, they subsequently reached record levels after the group was approved to lend through the small and medium enterprise (SME) government guarantee schemes in the UK and US. In its home market, the group has provided around a fifth of CBILS loans by volume, and £1.2bn by value.
While the net effect was a 7 per cent decline in new lending to £1.11bn, total group income was still up 24 per cent year-on-year at £101m. Against total operating expenses of £119m, management could lay claim to closing the delta towards a long-promised (and arguably overdue) break-even point.
But for all its claims of technological prowess – it now takes UK borrowers six minutes to complete an application, and just 9 seconds to wait for a decision – Funding Circle is still a lender, with all the risk that implies. As such, it has not been spared from the broader deterioration in the economic outlook wrought by the pandemic.
Under a “central stress scenario”, defaults peak at three and a half times pre-Covid-19 levels later this year and reduce to “cumulative net losses of two times pre-Covid-19 levels” in 2021. Those projections help explain a £96.1m fair value loss in interim accounts.
For those impairments to prove accurate – and for Funding Circle to break even at the adjusted cash profit level – assumes “no further prolonged national lockdowns” in the second half of 2020. By its own admission, the business is also reliant on further UK government support for SMEs, which arrived a few hours after publication of results, when Chancellor Rishi Sunak extended a series of support measures for the UK economy.
At the same time, a spike in bonds and bank borrowings since last December has resulted in total equity dipping from £319m to £217m. Of the many investor concerns around the group’s larger banking peers, withering capital buffers and deteriorating balance sheets are not yet in focus.
Brokerage Numis expects 2020 to end with a net cash balance of £109m, and a loss of 36.2p per share, and first profits in 2022.
