Amigo Holdings PLC (lon:amgo)
Amigo Loans – Is It An Example Of Looking Fair Better On The Outside?

Amigo Holdings PLC Share Price
Grade:The Pink Grade - A Pure Slightly Informed Gamble, The Market Doesn't Like The Company But I Think That I Understand Why.
Title: Amigo Loans – Is It An Example Of Looking Fair Better On The Outside?
Company: AMGO - Amigo Holdings PLC
Share Price Then: 51p
Author: Ian Smith
Date: Wed 29 Jan 2020
Comments: I have liked Amigo Loans since it went public in Jun 2018, yet I have also seen that I seem to be in the minority and today, Mon 27 Jan Richmond Group, the majority share holder, has stated their desire to sell.

I did have shares in Accuma an IVA specialist years ago when IVAs seemed to be a booming business and like that sector it may be that the Guaranteed Loan business was always going to have a short life time too.

Once it became popular the “It is someone else’s fault brigade” has got stuck into the company saying that the Borrowers didn’t understand what they were borrowing and the Guarantors didn’t realise that they would actually be expected to pay if the repayments weren’t being made.

I am quite willing to believe that there are some genuine cases where procedures were not followed correctly and the need to make sales overrode everything else, but in such volumes that the business is no longer worth owning?

So why is it up for sale, is it the future is rocky or is it that it is now an established big business which needs managers and procedures and customer complaints departments and this is simply not of interest to Richmond Group?

Looking at the half year to Sept 2019 report key headline numbers were

Net loan book of £730.7m, an 8.8% increase year on year

Impairment:revenue ratio up 7.8ppts to 31.1% (H1 FY19: 23.3%), Yes on £145m of revenue Amigo booked £45m of impairments.

Cost:income ratio, ex-complaints, increased to 20.8% (H1 FY19: 17.8%) 28.0% including complaints provision

Statutory profit after tax 1.9% lower than prior year at £37.0m Adjusted profit after tax of £35.8m, 24.2% below prior year

So I have a suspicion that it a combination of both.

If I were Provident, Morses, NSF etc would I want either the business or the loan book?

The total loan book is about £730m.

If we assume that these loans have a year to run on average then there is roughly £360m in interest and £730 of capital to be repaid, call it £1bn for convenience.

Being very back of an envelope, if we accept the 30% impairment ratio then that means roughly £300m of impairments and 28% cost ratio then that is around another £280m meaning that the debt may be worth around £420m.

Clearly if you are running the business down then there will be no need to advertise so the operating costs should be much lower, but it is easy to see that fees associated with the transaction could wipe put much of these savings.

That equates to a share price of a bit under 100p.

Buying at today’s price of around 50p doesn’t look too attractive to me for the business if you are intending to lay off staff and integrate with an existing operation.

Selling the loan book, winding up Amigo and returning funds to share holders at anywhere between 25p-50p does seem like a credible option.

In this case operational costs could be lower to the purchaser as they already have a collection operation, but these savings may easily be lost in the cost of integrating the business.

Equally impairments may be lower If handled by an existing team, or not as that team needs to be scaled up.

Being neutral, 50% APR for a guaranteed loan seems steep and as guarantors have decent credit ratings, they may be more used to complaining.

The real question is as complaining risks ruining the guarantor’s credit score where will the impairments end up if you run the book down and pursue debt?

Especially if the debt is pursued under the Amigo name and the book owner has no concerns over negative publicity.
Read Count/ID: 179/10110

Buy/No Buy In A Nutshell
NegativesA combination of making risky loans and an unwillingness to tell complainants and regulators that the borrower and guarantor has the majority of the responsibility as they asked for and accepted the loan
PositivesNew management could get much more aggressive with people complaining that they asked for and were given loans but they can't afford them.
Initial Review Price7p
Last Review Price13.26p
Last Review Date02-Sep-2020
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