Amigo Holdings (AMGO) has put itself in the shop window, after founder James Benamor’s Richmond Group announced it is “a willing seller” of a 60.7 per cent stake in the guarantor loans company.
The news hit the shares by more than 40 per cent to as low as 36p, continuing a disastrous run to public life since a June 2018 listing, at 275p a share. Though Amigo maintained its guidance for loan book growth and impairments for the nine months to December 2019, management is concerned by increased pressures on its business and a “continual evolution” in the response of the Financial Ombudsman Service (FOS), which handles customer complaints.
In the first half of 2019, the FOS received 266 customer complaints about Amigo, up from 117 in the same period in 2018. Complaints involving the guarantor loan product – in which Amigo is the dominant market player – also spiked in the three months to June 2019, while the proportion of cases upheld climbed to 83 per cent, up from 32 per cent in the previous financial year.
The broader regulatory environment remains uncertain. Last November, a Financial Conduct Authority review into guarantor loans – which requires sponsors to cover a borrower in the event of non-payment – did not raise issues with the product itself or Amigo’s business model. But the watchdog signalled it will closely scrutinise product affordability and issues around persistent debt, as part of its broader monitoring of sub-prime credit markets. Questions over the sustainability of repeat lending forced Amigo to cut its loan growth forecasts last August, in a painful profit warning.
Amigo now acknowledges overall lending volumes could be hit further following the launch of a strategic review. The board, to which Mr Benamor returned in December, said it will consider an outright sale of the business, a partial sale of subsidiaries or loans, a group-wide restructuring, or a delisting.
Last Friday, analysts at HSBC upgraded the stock to a ‘buy’ rating, and set a target price of 100p, pointing to “multiple avenues for reinvigorating growth” – including cheaper financing, a punished valuation, investment in the company's collection team, and an eventual increase in lending – which could drive a rerating. Defending its own bull case, analysts at Numis argue that the guarantor model has proved to be a “superior” high-cost credit product, providing “materially cheaper finance” to potential customers.
However, it is difficult to square those views with Richmond’s apparent decision to capitulate. Having stepped down as chief executive in 2016, and leaving from the board shortly after the group’s IPO, Mr Benamor has long signalled his intention to pursue interests outside of Amigo. The listing document also refers to “contractual obligations on Richmond to ensure that the company operates independently” of the majority shareholder. But the retention of a stake and rights to appoint board members suggested Richmond still had a role to play.
The spotlight swung back to Mr Benamor in December, when he forced himself back onto the board, alongside Richmond colleague Kelly Black. That prompted the resignation of chairman Stephan Wilcke, remuneration committee chair Clare Salmon and chief executive Hamish Paton – who only took the top job last June when Glen Crawford stepped down due to ill health.
Shortly before these changes, management said Amigo was working with the FOS to resolve a backlog of complaints (see chart). “With the FOS backlog unwinding, we expect to revert to more normalized, lower uphold rates and reduced average redress,” chief financial officer Nayan Kisnadwala explained.
However, investors must wait until mid-February to learn whether complaints – and resolutions in favour of customers – remain on an upward trajectory. An FOS spokesperson confirmed that complaints – which range from guarantor coercion and agreement to questions of affordability on the part of both borrower and guarantor – were “in the hundreds rather than the thousands” in the six months to December.
Richmond Group declined to comment.
