Funding Circle (LON:FCH) - Liquidity
Share Price 98pMkt Cap £341mConflict Disclosure: No Holding- News It appears that Funding Circle has a liquidity problem. The information can be found on the FAQ section of their website. In September it took an average of 100 days to sell a loan and this increased to 124 days between 2 October and 8 October. Funding Circle also says “if you are joining the queue now it is likely your sale time will take longer”.
- Estimates Having achieved a £31m loss in H1 (£27m loss in H1 2018) from revenue of £81m the company looks on track to achieve the estimated ££171m revenues and £50m loss for the year. In H1 originations were up 14% and loans under management were up 37% to £3.5bn. With a queue of people trying to sell loans perhaps we should take the loans under management number as unrepresentative of the future.
- Valuation 2X revenue is still a full valuation. The company has £270m cash but on top of that it has £33m of investments in its own loans and £147m bank debt on a revolving credit facility.
This looks catastrophic for the model. The outlook at H1 results in August guided to 20% revenue growth. But when you are holding back the sellers it is possible to manufacture growth. In H1 £35m marketing spend drove an increase in originations of £149m of loans. That looks like a model that doesn’t work.
Flow Trophy - Quarter to September
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
Conclusion This stock is viewed as a play on the small cap market and these results suggest otherwise. With 27% added to earnings over 2 years post the merger there are reasons to be more excited.