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Funding Circle spreads out

In a bid to diversify its lending streams, the SME lender has taken on debt
August 12, 2019

A month after halving its full-year revenue growth forecast to 20 per cent, small business lender Funding Circle (FCH) appeared to have foreshadowed the toughest takeaways from interim results. However, further detail on its reasons to tighten lending criteria complicated what was a more reassuring update.

IC TIP: Hold at 104p

While economic uncertainty abounds, expected loan performance is reassuringly in line with projections set out in April: net returns to investors on Funding Circle’s platform are expected to deliver 4.4-8.4 per cent for 2018 loans and 5-8.5 per cent for 2019. However, smaller and younger UK companies – the key borrower base – have now been blamed for some deterioration in the riskiest 15 per cent of the portfolio, owing to “a deterioration in the consumer credit environment since 2016”.

Oddly, Funding Circle’s listing prospectus fails to mention this trend, referring only to “relatively stable” economic conditions and the possibility that they might be adversely affected by Brexit.

With the need for diversification apparent, this year has already seen the launch of four new investor products, comprising private direct lending funds in continental Europe and the UK, and asset-backed security bonds in the US and UK. The latter two explain the arrival of £147m of borrowings on the balance sheet, as well as £30m of the £63m reduction in net cash in the six months to June.

Consensus forecasts are for a loss of 14.3p a share this year, narrowing to 12.8p in 2020.

FUNDING CIRCLE (FCH)   
ORD PRICE:104pMARKET VALUE:£363m
TOUCH:104-105p12-MONTH HIGH:460pLOW: 93p
DIVIDEND YIELD:NILPE RATIO:NA
NET ASSET VALUE:108p*NET CASH: £123m
Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201863.0-27.1-10.6nil
201981.4-30.8-8.9nil
% change+29---
Ex-div:n/a   
Payment:n/a   
*Excludes £180m of investments in loans.