Funding Circle valuation ‘reflects brand and growth opportunity’
KPMG’S global co-head of fintech has defended Funding Circle’s stock market valuation, amid concerns the initial public offering (IPO) was priced too high.
The peer-to-peer business lender, which listed on the London Stock Exchange on Friday, was originally targeting a market value of £1.8bn. But after narrowing its IPO price range, it subsequently priced at 440p, implying a market capitalisation of £1.5bn.
Some market commentators argue the company is overvalued as it is still loss-making, although revenues surged from £51m in 2016 to £94.5m last year.
However, Anton Ruddenklau of consultancy KPMG said that Funding Circle’s alternative lending model, its brand, the scale of its customer liquidity and the opportunity to extend its model further afield all support a strong valuation.
“Funding Circle is one of those organisations that has shown us a good and robust business model, and it has been able to acquire customers with confidence,” he told Peer2Peer Finance News.
Read more: Funding Circle remains fastest growing P2P firm
Lex Sokolin, partner and global director of fintech strategy at research firm Autonomous, suggested investors should take note of the struggles of listed P2P lenders in the US. OnDeck and LendingClub, which both floated in 2014, have seen their share prices plummet by 67 per cent and 84 per cent respectively since their IPOs.
“While both the prospect of digital distribution and improved underwriting is exciting, there is information we can learn from global analogies,” said Sokolin.
Ruddenklau pointed out that the biggest issue in the US has been the soundness of some lenders’ algorithms – namely, how they balance customer acquisition with delinquency rates.
“The algorithms need to be reasonably sound otherwise it’s a short-term cycle business model,” he said. “Funding Circle to date has shown that what it has developed works, and I think it will avoid any issues around bubble hype and disappointment.”
Ruddenklau added that one issue to be aware of is Funding Circle and its peers have not yet been tested by a large downturn in the economy.
“One question at the back of my mind as an investor would be, ‘How does a business model like Funding Circle be stress tested?’ But I have confidence that it has a sustainable business model and it will continue to be a category leader and grow.
“My thesis is that platform-based firms, technology-based financial services and firms that also promote better quality financial and social inclusion into the system are the future of our industry.”
Read more: Is the P2P sector prepared for a downturn?
Helal Miah, investment research analyst at The Share Centre, said Funding Circle’s valuation seems on the high side at 15 times sales, which should be viewed cautiously by investors.
But he added that the lender is the biggest in its sector and the market is huge, offering a lot of potential for growth.
Read more: Funding Circle scraps downloadable loanbook
