Funding Circle Holdings PLC (lon:fch)
Funding Circle Holdings - A Floatation Failure, But Is It A Business Failure?

Funding Circle Holdings PLC Financials

ItemCurrent PeriodPrevious Period
Period6 Months6 Months
Adjusted Earnings
Adjusted EBITDA(£19m)(£14m)
Statutory Profit(£31m)(£27m)
Adjusted Profit
Total Debt
Net Debt

Commentary History
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Funding Circle Holdings PLC Share Price
Grade:The Orange Grade - Shares That I Think Show Promise With A Few Caveats.
Title: Funding Circle Holdings - A Floatation Failure, But Is It A Business Failure?
Company: FCH - Funding Circle Holdings PLC
Share Price Then: 108p
Author: Ian Smith
Date: Thu 08 Aug 2019
Comments: Funding Circle floated in Sept 2018 at 440p, they are now at around 105p after following a fairly consistent downward slope.

A share that is at 25% of its floatation amount in less than a year is clearly a failure, but what about the underlying business?

Funding Circle specialises in lending to SMEs and are partially a peer to peer lender but they have a lot of funding from corporate sources.

The website is still quite strong on the Peer to Peer aspect of the business, but the trading update say Deep and diverse investor base: In H1 2019, approximately £210 million of new lending commitments were secured from pension funds, insurance companies, government entities and banks. In h1 36% of funding was from retail investors so it is still a big part.

Bypassing all the hype they are a “bank” (they aren’t a bank legally) lending to small businesses, everything else is just froth.

The big difference between Funding Circle and a traditional bank is that Funding Circle is based around lending to customers that they often have no previous relationship with. Whereas traditional banks generally expect to know the business asking for the loan.

Added to this the Funding Circle name is not well known and they have no branches so finding customers is expensive think TV adverts, Email marketing and other ways of targeting every business because they don’t know who wants a loan.

At first glance 46% of Group revenue from existing customers, up from 41% in H1 2018. Net Promoter Scores between 80-90 in UK and US sounds like good news, but is it? It could mean that they are lending to businesses that are just getting by and are a serious risk of closing and not repaying the latest loan. Or it could mean that they have a pool of expanding businesses which may mean that the latest loan is also the largest.

When asked about who they would go to first for a loan in future, 82% of borrowers say they would choose Funding Circle rather than their bank sounds good but it is self selective and how many of the 82% are customers because their bank sorry you’re too big a risk.

Looking at their website; 52,000 UK businesses have financed their goals by borrowing £5.4 billion through Funding Circle. so there is some substance to the business, but for the first 6 months of 2019 the income and people (£45m)/marketing expenses (£35m) just about balanced out at £80 million leaving the rest of the expenses making up a loss.

Funding Circle are not restricted to the UK only although the UK is the largest region at moment, lending is broken down as
UK Revenue - £53m
UK Revenue - £21m
Other (Germany/Netherlands) - £6.5m

Despite the length of the report there is a distinct lack of information on bad debt and for me this makes it very high risk investment. There are a few sentences that say the high risk loans are performing worse than expected but most or okay and that the average investor is receiving around 4%-8% returns.

Lending money is easy, and is losing it.
Read Count: 214/10076

Buy/No Buy In A Nutshell
NegativesWell established business that seems to be prioritising growth over profitability, they seem to have more money to lend than customers who can borrow and pay it back.
PositivesAs a government backed COVID loans provider these might be a good loan book, but these loans have no repayments due for the first 12 months.
Initial Review Price68p
Last Review Price76.8p
Last Review Date02-Sep-2020
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