The initial public offering (IPO) of Amigo Holdings (AMGO) was not meant to be the last pay-day for founder James Benamor, former chief executive Glen Crawford and chairman Stephan Wilcke. After all, the trio had each agreed to sell just over a quarter of their stakes at the guarantor loans group’s June 2018 listing, netting £304m, £29.4m and £12.4m, respectively. Between them, they still controlled more than two-thirds of the stock.
But after a disastrous first-quarter trading update caused the shares to plummet to an all-time low of 66.8p, 76 per cent adrift of the IPO price, these residual holdings are each worth less than the cash banked at flotation. The key question for the three men, alongside Invesco and other minority investors, is whether Amigo’s market valuation can be preserved – even at current levels.
To many, the writing was already on the wall for the parent of Amigo Loans, which lends up to £10,000 to sub-prime borrowers backed by a credit-worthy guarantor. At 49.9 per cent, its standard variable interest rate may be below the astronomical fees once charged by payday lenders such as Wonga, but well above even the highest-charging credit cards.
Bears could readily point to the Financial Conduct Authority’s recent comments on the guarantor market, of which Amigo has an 80 per cent share. Earlier this year, the regulator said it was concerned with the growth in guarantor payments, as well as the number of guarantors making at least one loan repayment. “We are also seeking to establish whether potential guarantors have enough information to understand the likelihood and implications of the guarantee being enforced,” the Financial Conduct Authority (FCA) said.
Though Mr Wilcke previously said Amigo’s public debut had “fuelled some urban myths about” the group and its customers, the group suddenly appears eager to pre-empt any crackdown on the market.
While Amigo says the proportion of payments made by a guarantor has remained “broadly steady at just under 10 per cent”, customer numbers are also up 17.3 per cent in a year. Greater numbers of guarantors, most of whom broker Berenberg estimates are family members, are bailing out their children, partners, siblings and parents. Predictably, this growth has brought rising levels of complaints, a provision for which partly led to a rise in first-quarter cost-to-income ratio to 23.4 per cent, up from 17.5 per cent a year ago.
Though the company and analysts at Goodbody sought to emphasize that credit quality is unchanged, the quality of the loan book does seem to be deteriorating, in part due to a weaker economic outlook. Strip out the costs associated with the IPO, and pre-tax profits of £22.6m were up just 8 per cent, as impairment costs rose by more than a third and operating expenses climbed from £11m to £16.7m. Impairments are expected to remain elevated at between 30 and 35 per cent of revenue, which shows you the riskiness of the business Amigo is in, and the effects of more stringent accounting rules.
To address this, Amigo has “enhanced and tightened” its credit policy, and now thinks the best cause of action is to prioritise new customer loans over repeat business. Amigo’s plea to the FCA, and whatever it may legislate for, is that only 12 per cent of customers have topped up their loan more than twice. But that does not quite give the full picture: in the year to March, repeat lending accounted for 39 per cent of the group’s £426m loan originations.
Still, at least one new face has faith in the abrupt strategic re-pivot. In a show of faith in the revamped business plan, chief executive Hamish Paton acquired 50,000 shares in the group at an average price of 79.6p. Chief analytics officer Naynesh Patel was less convinced, selling a £10,083 stake on the morning of the announcement.
