Revenue up but losses widen at Funding Circle
Funding Circle’s total income grew by 24 per cent in the first half of 2020, but operating losses widened to £113.5m.
In its half-year results announcement this morning, the peer-to-peer lending platform revealed that reported total income rose to £101.2m in for the six months ending 30 June 2020 – 53 per cent above consensus estimates of £66.5m.
The platform also laid out the success of its coronavirus business interruption loan scheme (CBILS), which has delivered more than £1bn to small- and medium-sized enterprises (SMEs) across the UK.
However, the company has not been immune to the impact of Covid-19, reporting an operating loss of £113.5m in the six months to 30 June 2020. By contrast, operating losses were £31.3m for the first half of 2019. Funding Circle noted that the operating losses included an exceptional non-cash write-down of £12m of US goodwill related to the US restructure, and £4.9m related to the restructuring of its developing markets business.
In March of this year, Funding Circle’s chief executive and founder Samir Desai (pictured) told Peer2Peer Finance News that the platform was aiming to break even in the second half of 2020. Desai confirmed that the platform still hopes to reach its breakeven point before the end of the year, but this is contingent on there being no further prolonged national lockdowns in the US and UK, and includes the expectation of ongoing government support for SMEs in the UK.
“We remain focused on profitable growth and are reinstating our target of close to AEBITDA break-even for the business in the second half of 2020,” said Desai.
“We believe that Covid-19 has led to an acceleration in the adoption of online small business lending and small businesses are increasingly drawn to the unique Funding Circle model, which provides access to finance in a fast and affordable way with excellent customer service.”
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By the mid-point of this year, Funding Circle held net assets of £216.9m – down from £319m in 2019.
Loans under management grew by five per cent, year-on-year, reaching a value of £3.7bn for the first half of 2020. Yet origination volumes dropped by seven per cent year-on-year, as a result of lower levels of originations in March and April while the platform waited to become CBILS accredited.
Funding Circle also revealed that it had amassed a CBILS market share of approximately 20 per cent, making it the fifth largest CBILS lender in the UK.
The platform was approved to offer CBILS loans in May, and between June and August, Funding Circle’s lending volumes rose by more than 30 per cent year-on-year.
In a statement to investors, Funding Circle predicted that “long term low interest rates are likely to continue to attract strong demand from institutional investors to fund SME loans”, but added that the economic environment remains “very uncertain”.
“Early Covid-19 trends suggest a permanent change in the SME borrowing market that we believe will benefit Funding Circle in the medium to long term,” said the platform.
“Government support has demonstrated the strategic importance of small businesses to economic growth. A higher proportion of SMEs are now accessing finance as a result and we believe this is likely to continue in the future.”
Brokerage Numis said that “Funding Circle has performed better than we had expected with loan originations” and predicted that the platform will become profitable by 2022.
Goldman Sachs analysts were more mixed on the stock, with revenues coming in higher than expectations while operating losses and adjusted core earnings missed the analysts’ guidance.
“We believe investors will weigh the increased focus on a path to breakeven in the second half of 2020 and eventually towards profitability versus the negative revaluation of Funding Circle’s investment exposure as well as limited visibility on revenue growth amid uncertain macro backdrop,” the research said.
“Further, in these unprecedented times, Funding Circle, in our view, has demonstrated the resilience and value of its platform in distributing loans to SME’s in a seamless manner and managed to increase significantly its market share in SME lending in the UK and US.”
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Funding Circle’s share price was down 6.6 per cent by mid-morning trading to £57.90.
