Funding Circle Seeks Path to Profitability After Tough Market Start
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The chief executive of UK peer-to-peer lender Funding Circle said the pandemic has finally convinced skeptical investors the company could survive an economic downturn as it seeks to stage a ‘big comeback’ after the start of life. difficult as a public enterprise.
Funding Circle, which provides small business loans for other financial institutions and retail investors, listed at a valuation of around £ 1.5 billion in 2018, but at its lowest level last year, its market value of less than £ 100million was less than the amount of its cash. balance sheet.
However, investors have warmed for the company in recent months as government-backed loan programs helped it achieve profitability for the first time in its history. The share price has more than doubled in the past six months, and better-than-expected annual results on Thursday helped push stocks to their highest level since a profit warning in July 2019.
Samir Desai, chief executive, admitted it had been “a difficult few years” thanks to a combination of Brexit, a global pandemic and company-specific issues. But, he said, “Today I feel better about the company than I ever have been. . . we hope this is the start of our great comeback story.
The company reported a pre-tax loss of £ 108million for the full year, with results dragged down by a already announced depreciation on loans it intended to sell to other investors before the pandemic struck.
However, the second half of 2020 marked its first profit before tax of £ 7million, while its preferred measure of profitability – adjusted earnings before interest, taxes, depreciation and amortization – was £ 20million, stronger than expected in a January Trade Update it was already more optimistic than previous forecasts.
“I spent 10 years wondering ‘what happens when you go through a recession?’ I can finally prove it’s coming back [for investors in Funding Circle’s loans] – although they were lower than before the pandemic as we always said they would be – are all positive, ”added Desai.
Neil Rimer, Partner at Index Ventures, Funding Circle’s largest shareholder, said: “We have known for some time that Funding Circle’s technology enables them to lend money faster and more efficiently than banks. Now we also know that Funding Circle has weathered the crisis to provide vital loans to small businesses, which are the backbone of the economy. “
Funding Circle was the first major IPO among a series of digital lenders that emerged in the UK in the aftermath of the latest financial crisis, but came under pressure after a decision to tighten lending criteria the forced to reduce growth forecasts.
Desai said last year’s experience helped prove the move “was the right thing to do in the long run,” but said it was understandable that investors were upset when the company backed out. its IPO commitments.
Many executives insist they are not concerned about short-term fluctuations in the stock market, but Desai said “it’s stupid to say it doesn’t affect” staff and investor morale. , especially since it shook the confidence of individual investors which finance part of the Funding Circle loans.
“There was never a time when I thought the business was going to close. . . it’s not like I was existentially worried, but I was afraid it would get in the way, so the business became a shadow of what we could be.
Funding Circle has since scaled back its ambitions in continental Europe, but is considering further expansion into its core markets, the UK and US, after developing new technology to automate loan underwriting. The company said the new technology, in addition to lowering the cost of scaling its existing business, would allow it to offer services such as commercial credit cards and payment financing.
“It’s great fun to run a profitable business,” Desai joked. “If I had known this, I would have done it a long time ago.”