Funding Circle is heading for its second anniversary as a publicly listed company with its share price and market capitalisation well below the level at the time of its initial public offering (IPO), but analysts say there are still reasons to be cheerful.
The firm became the first peer-to-peer lender to launch an IPO in the UK on 3 October 2018, priced at 440p a share, which gave it a market valuation of £1.5bn. It entered the second half of September 2020 with its share price at 72p and a market capitalisation of £235m.
Russ Mould, investment director at broker AJ Bell, says Funding Circle’s valuation was too high to start with.
“Funding Circle’s share price swoon owes much to the lofty valuation attributed to, and hopes pinned on, the firm at the time of its IPO two years ago, just as enthusiasm for ‘fintech’ stocks was really gathering,” he told Peer2Peer Finance News. “Last July’s profit warning, a soggy UK economy, Brexit and a pandemic have hardly helped either, with the result that the potential risks of P2P lending have come into greater focus than the potential rewards.”
Funding Circle has navigated an eventful two years as a publicly listed company.
Last year, it tightened its lending criteria and halved its revenue growth forecasts due to the challenging economic environment. However, there were bright spots for the firm as its UK business was profitable for the second half of 2019 and it completed its seventh securitisation of its loans in January 2020, underlying the attractiveness of the asset.
And when the coronavirus pandemic took hold earlier this year, Funding Circle was the first P2P lender to gain accreditation to participate in the coronavirus business interruption loan scheme (CBILS). As a result of its CBILS involvement, the platform has temporarily closed to retail investors as it focuses on providing the emergency finance to businesses that can only be funded through institutions.
Mould said Funding Circle’s involvement in both the CBILS scheme in the UK and the paycheck protection programme in America are an endorsement of its capabilities and the value of its model.
“Investors will rightly worry about the risk of impairments and loan losses but if Funding Circle can come through these extraordinarily testing times with positive returns, that would help to convince sceptics that the P2P model and online borrowing work,” he added.
“A subsequent economic upturn could then offer a further lift to demand, and also risk tolerance among investors.”
He suggested “risk-tolerant investors” may yet come back to P2P as a potential source of income, as they balance potential rewards with the risks.