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Pricey Funding Circle too risky

Shares in the recently listed peer-to-peer lending specialist are trading at a premium to US competitors, but the group is a long way from turning a profit
Pricey Funding Circle too risky

At 440p, Funding Circle’s (FCH) October IPO may have priced its shares at the lower end of the range, but a 28 per cent decline in their value since then indicates the market's doubts about the peer-to-peer lender’s high hopes for growth and accompanying punchy valuation. While the group has been growing loans under management at a ferocious rate, that has meant fast-rising marketing and staff costs, along with other investments. Even with heady growth forecast, analysts are not forecasting profitability until 2021. Achieving this will depend on Funding Circle's ability to continue to attract investors willing to stump up the cash for small- and medium-sized enterprises (SMEs) to borrow and finding sufficiently creditworthy SMEs wanting loans. The model could come under pressure in an economic downturn and recent survey data from the Institute of Directors suggesting business confidence is at an 18-month low does not bode well.

IC TIP: Sell at 312p
Tip style
Sell
Risk rating
High
Timescale
Medium Term
Bull points

Growing revenue fast

Institutional backing secured 

Bear points

Highly rated shares

Lossmaking

No dividend planned

High operating costs

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