UK’s subprime lender, Amigo Holdings Plc has decided to pause all new lending activity as Britain steps up its fight against coronavirus. However, as per the trading update dated 24 March 2020, the company would continue to provide an emergency loan to key workers in financial distress.
Amigo caters to the customers by providing them guarantor loans who do not qualify for access to credit from the mainstream lenders. This move by the company was called upon due to the prevalent uncertainty of the global economic meltdown caused by the Covid-19 pandemic and the possible impact on its customers.
The company believes that its employees who are free from their roles due to pause in credit disbursal can now contribute to the growth of the company by serving those customers who might require forbearance due to the change in their financial conditions. This seems to be a good move by the company as it will give its employees a sense of job security in the current uncertain economic scenario.
In addition, the company would also reconsider and devise a new approach to give access to credit on a consistent basis and empower its employees to make working remotely from home, in accordance with British government’s guidelines. The company is trying to find a balance between protecting the health of its employees as well as maintaining the quality levels of its services to the existing loan accounts.
Earlier this month, Amigo’s founder and majority shareholder, James Benamor has quit the board of the company and has accused the group of irresponsible lending. However, the management of Amigo Holdings continues to find a buyer for the company and has appointed Glen Crawford as a consultant to help with the sales process.
- Amigo Holdings- Company Profile and Business Activities
The UK based prominent subprime lender company Amigo Holding Plc (LON: AMGO) offers credit loans to those who are unable to borrow from other lenders due to their low credit scores and help them to rebuild their credit scores and improve their ability to access credit.
The term ‘subprime lending’ is referred to a specific lending market segment which is nonconforming or non-standard, where borrowers have a higher risk profile, for instance, due to poor credit history) than standard risk profile customers and hence do not qualify for credit by the mainstream lenders.
The most common types of loan applications which fall into the category of subprime lending are: applicants with a high Debt to Income ratio, applicants who cannot provide all the documentation required for the underwriting of loans, applicants asking for high Loan to Value (LTV) mortgages and applicants with a poor credit score due to bad credit history.
The company was founded in 2005 and became UK’s largest provider of guarantor loans over time. The company delivers a single product, i.e. a guarantor loan, with no hidden charges, no fees and no redemption penalties. The company is also in the business of sales financing.
The company believes that its loan products are an appealing substitute to higher rate loans, such as payday loans and other forms of non-standard finance.
- Financial Highlights for H1 FY2020
The shares of the company have their listing on the main market segment of the London Stock Exchange under the ticker symbol AMGO. The FTSE All-share traded, Amigo Holdings’ revenue stood at £270.70 million in the fiscal year 2019.
The guarantor loan products of the company witnessed consistent demand along with growth in customer base in the first half of the fiscal year 2020. The company also rolled out operational and strategic initiatives and made encouraging progress along with a positive start.
The company transforms the lives of people who do not get access to loans by the mainstream financial institutions. Working alongside its regulators, the company aims to achieve the best outcome for its customers by deploying the best industry practices and becoming a role model in a growing sector of subprime lending.
In the first half of the fiscal year 2020, the company strengthened its credit policy which resulted in lower re-lending. During this period, the company achieved higher levels of customer growth by targeting new customers. The company devised action plans to address collection issues and constraints along with outsourcing partnership. The company recorded solid growth in its Irish business with a net loan book of EUR 4.8 million in the first half of the fiscal year 2020, i.e. the six months ended 30 September 2019.
(Source: Annual report, Company’s website)
In both year on year and quarter on quarter, lending to new customers has gone up to record levels due to aggressive marketing campaign and advertising efficiency resulting in new lead generation. This has resulted in an increase of 17.9 per cent in the number of customers to 222,800 in the first half of the fiscal year 2020 from 188,900 in the first half of the fiscal year 2019 along with over 12,500 net new borrowers added in the second quarter.
During the first half of the fiscal year 2020, the company recorded a revenue of £145.4 million in contrast to £130.1 million in H1 FY19. As per the company’s information, the increase in half-year revenue can be attributed to consistent growth recorded in the net loan book. The net loan book increased to £730.7 million during the period (H1 FY2020).
The company recorded an adjusted profit after taxation of £35.8 million in H1 FY20 as compared to £47.2 million in H1 FY19 along with statutory profit after taxation of £37 million) in H1 FY20 in contrast to £37.7 million in H1 FY19.
The company’s net loan book rose by 8.8% to stand at £730.7m in H1 FY20, underpinned by strong customer growth of 17.9%, as compared to £671.7m in H1 FY19. The company’s reported profit after tax decreased by 1.9% to £37m in H1 FY20. The company’s adjusted profit after tax stood at £35.8m in H1 FY20 (H1 FY19: £47.2m). The company also proposed an interim dividend of 3.1 pence for the period ended 30 September 2019.
- Company’s Outlook
Looking forward, Amigo confirmed its focus on achieving the best customer outcomes. The company has made further improvements in its existing processes which will take some time to show results. The company can reduce its cost base as it has strong cash generation through its robust business model.
(Source: Thomson Reuters- Daily chart of AMGO as on 26-Mar-2020)
- Stock Price Performance
On 26th March 2020, at the time of writing (before market close, GMT 03:37 PM), Amigo Holdings Plc’s shares were trading at GBX 15.10. Stock's 52 weeks High and Low is GBX 297.50/GBX 10.48. The beta of the company stood at 2.02, which meant that in comparison with the benchmark index, the stock was significantly higher in volatility. The total market capitalisation of the company was recorded at £73.30 million. The company’s gross dividend yield stood at 78.61 per cent.