Funding Circle still burning cash

In 2019, new loans in the UK – still the group’s core market – ticked up 2 per cent to £1.56bn, contributing to a group-wide increase of 3 per cent. The knock-on effect on outstanding lending was greater. Despite prioritising investor returns and better credit quality over growth, total loans under management climbed 19 per cent to £3.73bn.

The question, of course, is what happens to this model in a full-blown recession. While an uncertain economic outlook was cited for the decision to trim lending growth last year, Funding Circle’s brief comments on the unfolding coronavirus situation were simply to acknowledge the “possible impact…on borrowers and investors”.

Thus far, trading is yet to take a hit, and has even started the year well. Chief executive Samir Desai is even confident the group can break-even in the second half of 2020 – if, that is, ‘adjusted Ebitda’ can be taken as an acceptable measure of profitability.

Last year, this metric widened to minus £27.5m, as earlier-stage offices in the US, Germany and the Netherlands saw losses rise faster than revenues. Factor in rising product development, corporate costs, depreciation and amortisation and exceptional items, and you get to the reported loss.

However, there was one sign of encouragement, particularly if dwindling cash resources mean corporate actions need to be taken in the next two years; even after allocating proportionate corporate costs, Funding Circle’s UK arm would have recorded an operating profit in the second half of 2020.

Analysts at Numis expect losses of 7.8p a share this year and 3.5p a share tin 2021.