ONLINE property lender LendInvest last month confirmed that it is considering an initial public offering (IPO) as one of “a range of strategic options for the business”.
The former peer-to-peer lender – which withdrew its P2P regulatory application after it stopped accepting retail money via its platform – joins RateSetter and Zopa in the IPO rumour mill, which has gathered pace since Funding Circle’s £300m flotation last year.
Zopa’s chief executive Jaidev Janardana told CNBC last December that he could see an IPO being possible in the future as its capital requirements grow, while RateSetter’s chief executive Rhydian Lewis previously confirmed that he sees a public listing as “a natural step” for the business.
LendInvest has already raised more than £30m in a pre-IPO funding round, but what sort of reception could it get if it listed in the current market environment?
Funding Circle listed on the London Stock Exchange to great fanfare last October, but its shares fell by up to a quarter on its first day of full trading and they have been volatile since then.
Sky News, which first reported that LendInvest was mulling an IPO, said that the firm was seeking a minimum valuation of £500m.
AJ Bell’s investment director Russ Mould said company fundamentals will always be what drives a stock market valuation, and investors will be looking at whether LendInvest makes a profit and generates cash before deciding if its IPO is worth backing.
He noted that Lending Club’s 2014 US listing could be seen as a cautionary tale for online lenders looking to make their stock market debut.
“Lending Club’s share price has tanked from around $25 (£19) to $3, there are corporate governance issues there and loan impairment rates have risen,” he said. “It has not been a successful investment so far; the financial performance has not come through.”
IPO activity in the UK has been muted so far this year, Mould said, with uncertainty around Brexit a key factor, but he said any IPO will do well if the story is good enough. “If the investment case is strong enough and the valuation is sensible then things can fly, no matter the timing,” he added.
Chris Beauchamp, chief market analyst at IG, said that investors may have unrealistic expectations about the growth trajectory of a newly-listed business.
“A business IPO-ing to raise more cash is going to go through a period of necessary growth and high spending and that is going to hurt earnings,” he said.
“The worry is that a lot of those companies that enjoyed initial growth are now going to have to slow down to some degree and that’s partially the reaction they had to Funding Circle. People assumed that there would be impressive growth immediately afterwards and had too rosy expectations of what you get from an IPO. Rather than a long-term stake in the business, they were hoping for a quick pop on the news.”
This article featured in the April issue of Peer2Peer Finance News, now available to read online.