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Funding Circle's short-lived rally

The SME lending platform's Q3 numbers were briefly encouraging, after its disappointing IPO
Funding Circle's short-lived rally

The sheer weight of news-flow either side of Funding Circle's (FCH) admission to the main market shows that it's doing all it can to sell its business model, though the market's reaction has been mixed at best. The group's shares rose by as much as 7 per cent in reply to an upbeat third quarter update, but you could argue that it was indicative of a modest relief rally after a disappointing debut at the start of the month. 

IC TIP: Hold at 390p

The company, which came into being in the wake of the global financial crisis, draws on a pool of funds collected from individuals and other firms, which is then lent to to small- and medium-sized enterprises (SMEs) deemed an appropriate risk. Non-standard forms of financing have gained in prominence, though credit risk factors are much the same as they ever were. So, the company is looking to expand its loan book, entailing some hefty marketing expenses, while trying to carefully select borrowers, presumably at a higher-risk end of the spectrum - far from a straightforward challenge. Given a relative dearth of supporting financial data about the lender, it's hardly surprising that the shares went into retreat initially, hitting a nadir of 327p within a week of the IPO. 

Still, the third-quarter numbers shed some positive light on Funding Circle’s recent performance. Loans under management (excluding property) were up 61 per cent to £2.8bn year-on-year. Loan originations rose 45 per cent to £564m and the gross yield sat at 9.8 per cent, in line with the previous year. Meanwhile, the projected annualised return range sat at 5.5-6.5 per cent, a slight improvement on 2017.