The Financial Conduct Authority may be running the slide rule over the peer-to-peer lending industry, but the UK’s largest operator, Funding Circle, is hoping investors will instead focus on the rapid lending growth. The group has set the price range for the upcoming offer at between 420p and 530p, which would give it a market capitalisation of up to £1.8bn.
Management hopes to raise £300m in gross proceeds from listing the shares on London’s main market, with retail investors able to apply for a minimum of £1,000 in shares via certain intermediaries by 27 September. The offer will comprise up to 71.4m new shares and a secondary sale by existing shareholders, with the exact size of the latter to be determined.
Funding Circle was established in 2010, providing a source of lending to small- and medium-sized enterprises (SMEs) underserved by mainstream banks since the financial crisis. Borrowers can apply online for a loan of up to £1m – although the average was £70,000 during the first half of the year – and are matched with investors. Last year almost a third of new loans were made to repeat borrowers and 85 per cent of funding came via existing investors. The group generates revenue via an initial transaction fee, ranging between 1 and 7 per cent of the original loan balance (deducted from the loan proceeds paid to the borrower), and an ongoing annual servicing fee of 1 per cent.
Around £1.04bn in new loans were originated via its platform during the first half, taking loans under management to £2.6bn – up more than half on the prior year. That fed through to revenue of £94.5m for FY2017, while the compound annual growth (CAGR) rate for 2015-2017 came in at 72 per cent. However, investment in the platform and related marketing has meant operating expenses have also been rising fast and constricting profitability. Management has not issued any guidance, although it does expect 50 per cent year-on-year growth for 2018 and is targeting a rate of 40 per cent over the medium term, at an adjusted cash profit margin of 35 per cent.