Funding Circle Holdings PLC (lon:fch)
Funding Circle – Have They Shafted Their Loyal Supporters?

Funding Circle Holdings PLC Financials

ItemCurrent PeriodPrevious Period
Year20192018
Period12 Months12 Months
Revenue£167m£142m
Earnings
Adjusted Earnings
EBITDA
Adjusted EBITDA
Statutory Profit(£85m)(£50m)
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 – Have They Shafted Their Loyal Supporters?
Company: FCH - Funding Circle Holdings PLC
Share Price Then: 114p
Author: Ian Smith
Date: Fri 17 Apr 2020
Comments: Funding Circle have shown a 100% increase in share price over the last couple of days, from around 50p to 100p or a bit under the average price over the last year or so.

I’ve been negative on Funding Circle recently as they did not seem to be generating the profits that I would have been expecting as it is now an established business.

This recent price increase seems to be related to the business now being able to offer loans under both the UK and US Government Covid schemes.

As a result, we will pause all non-CBILS lending from retail and institutional investors to concentrate on supporting the Government's SME stimulus programme. For investors that are unable (retail investors do not qualify for CBILS)......

So if you are a private investor and have put money into Funding Circle to be lent out, well tough, we are no longer interested in lending it.

Whether this also means that the company will divert all resources to making new loans and let debt collection slip is not clear, but abandoning the retail market as a source of funds to lend is a pretty big step.

In the UK the Government’s CBIL scheme guarantees 80% of the loan amount and this seems very attractive, but it is inherent that many applicants will be struggling businesses.

We also don’t know how the Government will apply the criteria has a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic if and when the Government is required to honour the guarantee.

Surely any business asking for a loan to meet ongoing costs such as rent, wages or equipment leases would be turned down under normal circumstances.

So buying today on the response to this news could easily see you locked in to a 50% or more loss if the CBIL loans turn out badly or perform typically for the current loan book.

If you have used FCH as a source of funds to be lend out then there have been a lot of reports of it being hard to get your money back early as this was never the focus of the platform. But if we now see a lot of annoyed retail funders, getting it out may be even harder.

To me abandoning non CBIL loans seems like “wow, I can see a great short term opportunity and to hell with the long term consequences and our partners”.

Taking this attitude usually ends badly.
Read Count: 329/10122

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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