Is Amigo Holdings just the wrong price?
“…The company is currently working through a backlog of thousands of complaints to ensure it is within FCA rules and is extremely high risk, but with a market cap of around £45 million and cash of £145 million is Amigo just the wrong price at around 10p after trading at around 70p at the start of the year?…”
What does Amigo do?
Amigo Loans (AMGO.L) aim to give people the chance to borrow even if they don’t have the perfect credit score. So, if you’ve been told “no” in the past, their mission is to make borrowing possible and affordable.
Its an old fashioned idea brought to present day life. Guarantor lending has been around for decades. They “work” with the company choosing to trust a borrower, even if they don’t have the best credit score, with the help of a guarantor. So, in a nutshell, if you can comfortably afford the monthly repayments and you have someone that’s got your back, then Amigo back you too.
Amigo customers come in all different shapes and sizes. Young people, people who have been out of the UK for sometime and small business entrepreneurs – all of which can all be viewed by banks as being risky when it comes to lending. What brings all Amigo customers together though it that they are trusted by their friends and families. Their own research tells us 67% of the UK would turn to family or friends if they were turned down for credit by the banks, and while many won’t have the money to lend, they still want to help. Amigo offer a way to make it happen.
So all good in principle, however The Financial Conduct Authority (FCA) launched an investigation into the firm’s practices in early June. The firm said that the investigation would focus on whether or not its credit checks on borrowers were carried out in line with lending rules, as it has a requirement for guarantors that can mean that friends and relatives are asked to pay off the debt if the original borrower fails to do so as explained above.
Why the recent sell off?
The firm was recently accused by its own founder and major shareholder James Benamor of lending irresponsibly and failing to tackle an increase in the number of consumer complaints from those who feel they should have never been given a loan. The sub-prime lending sector as a whole has faced a blizzard of complaints from customers who believe they were approved for loans which they could never afford to repay. This has led to the demise of some of the biggest names in the sector, such as Wonga.
Amigo was hit with another huge sell-off last month after a surge in complaints pushed it into the red and it warned its financial future is uncertain, but has todays news changed the goal posts?
What does todays news really mean?
The guarantor lender said this morning it now has until December 18 to ensure that it is within the terms of a multimillion-pound financing facility. The lifeline extends the deadline, which was meant to run out last Friday after originally being extended for a couple of weeks.
The facility will give Amigo enough time to understand the impact of the coronavirus pandemic, and the new deal will also reduce the facility’s size from £300 million to £250 million.
The waiver on the terms was announced in May, and was due to expire at the end of July, but lenders then gave Amigo another few weeks. Amigo needed the waiver after the Financial Conduct Authority (FCA) stepped in to ask it, and other lenders, to support customers through the Covid-19 pandemic.
Amigo said: “This follows the announcement on 27 July 2020 extending the waiver period to 14 August 2020, and allows both Amigo and its lenders the opportunity to fully understand the impact of Covid-19 on the business, whilst maintaining the existing facility”
Last month Amigo said there was “material uncertainty” that the company could continue trading as a going concern. today though the company has said: “Amigo has adequate liquidity to continue to fund operations and support its customers, with close to £145 million unrestricted cash held as at July 31″
Any other important points to consider?
Elsewhere, founder and majority shareholder James Benamor, who led an unsuccessful coup a few months back and has been selling 1 per cent of his 60.7 per cent stake in the firm every day, (currently down to around 20%) hinted he might be plotting a comeback when his holding is down to around 10%.
Today, Gary Jennison will join the Board as a non-executive director. He has over 40 years of experience within the financial services sector, of which approximately 20 years have been at CEO or board level. Most recently, he was Chairman of Orchard Funding Group PLC for two years until December 2019 and was Group deputy CEO of Together Money for two years until December 2015 These appointments followed a career covering a wide spectrum of the credit industry with positions at The Warranty Group, Secure Trust Bank , Barclays Bank, Lex Vehicle Leasing , GE Capital, Hitachi Credit and Lloyds Bowmaker, among others
The company is currently working through a backlog of thousands of complaints to ensure it is within FCA rules and is extremely high risk, but with a market cap of around £45 million and cash of £145 million is Amigo just the wrong price at around 10p after trading at over 70p at the start of the year?
