Funding Circle Holdings PLC (lon:fch)
Funding Circle – Reports More Losses

Funding Circle Holdings PLC Financials

ItemCurrent PeriodPrevious Period
Year20202019
Period6 Months6 Months
Revenue£101m£87m
Earnings
Adjusted Earnings
EBITDA
Adjusted EBITDA(£84m)(£20m)
Statutory Profit
Adjusted Profit
Total Debt
Net Debt

Commentary History
Funding Circle Holdings PLC Share Price
Grade:The Orange Grade - Shares That I Think Show Promise With A Few Caveats.
Title: Funding Circle – Reports More Losses
Company: FCH - Funding Circle Holdings PLC
Share Price Then: 76.28p
Author: Ian Smith
Date: Tue 29 Sep 2020
Comments: It’s not a surprise that a business that specialise in loans to higher risk businesses has suffered recently but the recent H1 report is actually quite confusing.

The Group made a total comprehensive loss of £106.5 million during the six months to 30 June 2020 (30 June 2019: loss of £30.0 million). which includes £96m of Fair Value losses.

This fair value loss is at the moment only theoretical, but it turns the business from breaking even to massive loss making and for me makes the report of limited use, effectively saying as it contains so much uncertainty.

What surprises me is that only 10% in the UK and 20% in the US are reported as not making full repayments, a small portion of these are flagged making partial payment (2% both UK and USA) the rest as either on a payment holiday (1.5%UK/10% USA) or not paying (5% UK/7% USA).

Given that most of 2020 lending was only CBILS/PPP (UK/USA government backed loans) it is not clear if the percentage flagged as full payment are those making payments or includes the COVID loans which have no payments due yet.

So we are waiting to see the results of the fundamental business change, lending only to businesses affected by COVID as well as pretty unclear picture of how the longer established loans are really performing.

This uncertainty is further enhanced with a really weird metric within the report, Borrowers missing payments for the first time. This shows a spike during March to May/June, but what is this telling us? A borrower can only miss payments for the first time once. It also has an odd scale, a multiplier (peaking at 12) comparing with Jan 2020. I always get worried when data is presented in a way that can appear to mean one thing but possibly means something else or even nothing at all.

The company now has £3.72bn of loans up from £3.54bn with new loans pretty much the same as last year, new loans would be expected to have been affected by COVID so not much can be gained from this.

The company boasts, 40% loans processed by instant decision lending technology, 6 minute average application time, 9 seconds on average to make an instant decision.

But is this really a positive?

All in all I am left with the unchanged view that the company has been around for long enough to be delivering profits and it doesn’t seem to be doing so.

There is so much turnover and new lending funds raising that the business can carry on but my worry is that one day the market will decide that time is up and share holder will be left with nothing.

Remember that the company floated at 440p in Sep 2018 and had crashed to around 120p within a year.
Read Count/ID: 380/14184

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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