Crowd financing business Funding Circle (FCH) has spooked investors after slashing its full year 2019 growth guidance in half.

The company says that demand for small business loans has dried up as Brexit uncertainty continues to drag on, making entrepreneurs nervous about borrowing to grow start-ups.

‘Funding Circle expects 2019 revenue growth to be circa 20%, versus previous guidance of 40%’, the company spells out today, sparking another swathe of share sales that have sent the stock price plunging again.

TICKET TO THE POOR HOUSE

Shares in the company have slumped around 20% to 132p, valuing the peer-to-peer lender at approximately £460m. Funding Circle joined the stock market at a staggering £1.5bn last September, based on its 440p initial public offer price.

The dismal outlook comes even as the company reported an approximate 30% jump in revenues for the first half of the year, with adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) loss margin expected to be about 25%.

Overall loan growth, arguably the most important figure to watch for now, came in at around 37% year-on-year for the first half to 30 June to £3.5bn, with new loan originations rising 14% to £1.2bn.

That means Funding Circle ‘provided more net lending (£177m) to small and medium-sized businesses than the entire UK banking system’, says Numis analyst James Hamilton.

The lending space has always been a hard slog and susceptible to demand slumps alongside the economic cycle. There are also understandable, and growing, concerns over the impact of a damaging no-deal Brexit.

 Founders Samir Desai and James Meekings

WHERE ARE THE PROFITS?

‘With £3.5bn of loans under management, one might perhaps expect Funding Circle to be in better position to turn a profit by now’, says Jon Davies, an analyst at the TechMarketViews website.

The company recorded a £51m loss in 2018 and with adjusted first half EBITDA reflecting a worsening operating loss margin of 25%, there appears to be little immediate prospect of a return.

Concerns had been raised before the IPO about the mooted valuation given that Funding Circle only generated £94.5m of revenue in 2017 and racked up pre-tax losses of £36m due to heavy advertising spending.

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Issue Date: 02 Jul 2019