Lender Amigo’s share price crashes as loan growth dwindles
High interest rate lender Amigo has had one-third of its market value slashed this morning after warning of a change of strategy which will see impairment rates jump and lending growth slow as it braces for a crackdown by regulators.
At one point this morning shares were trading 33 per cent down at 97p, as chief executive Hamish Paton told markets the firm was being “proactive and pragmatic” by changing plans before the Financial Conduct Authority (FCA) looks into the company in earnest.
Amigo is a guarantor lending specialist. This helps people with bad credit ratings borrow by nominating a guarantor to make payments on the loan if they cannot.
The watchdog has increased its scrutiny of Amigo’s business model and the sector as a whole, raising concerns that guarantors do not know what they are getting into. It has also criticised Amigo’s 49.9 per cent annual interest rate, and said customers could become stuck in a cycle of repeat borrowing.
The statement came as it reported its first quarter financial results.
The figures
Profit before tax grew to £22.6m for the three months ending 30 June, up from £17m the same time last year. Revenue rose to £71.5m.
Amigo’s number of customers increased 17.3 per cent year-on-year to 210,000, while its net loan book totalled £728.4m, up 14 per cent on the same time last year.
Earnings per share fell 21.8 per cent to 4.3p.
Why it’s interesting
The guarantor lending sector has ballooned in recent years following the decline of payday loan companies such as Wonga. Amigo has cashed in on this, but the FCA has also started paying it more attention.
The company has previously batted off concerns about the sector, but Amigo said this morning its growth for the rest of the year would be hampered by a shift away from re-lending towards bringing in more customers.
It also said it would make its credit rating policies more stringent and spend more money on compliance. The net loan book for the financial year is expected to be flat.
The firm has also put aside previous commitments to slash its net debt and growing its dividend to shareholders for the near future.
What Amigo said
“Amigo is both a responsible and profitable lender. We are focused on our future returns and building a sustainable business for the long term. We are accelerating investment in our operations to enable continued delivery of best in class customer service and further enhancing credit and conduct policies.
“This positive action means that we are hitting the ground running ahead of what we recognise is a changing regulatory and economic landscape. By doing this, we are being proactive and pragmatic. We are focused on achieving the best customer outcomes – all with long-term returns as a key driver.”
Chief executive Hamish Paton
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