Lending company Funding Circle (FCH) dipped 1.7% to 88.5p despite reporting better-than-expected performance in the second half of the year, supported by record loans under management (LuM) and originations.

Today’s modest sell-off follows a strong run for the shares which are up nearly 30% in the last four months.

The company reported second-half total income of £121 million and adjusted earnings before interest, taxes, depreciation and amortisation, or AEBITDA, of no lower than £15 million, well ahead of previous expectations.

Income reached £121 million in the second half (H2) 2020, up 26% year-on year, supported by record loans under management of £4.2 billion up 13% and originations of £1.6 billion, up 41%, the company said.

In the UK, H2 total income was up 60% year-on-year, and down 17% in the US.

SMALL BUSINESS LOANS SHIFT ONLINE

'As a result of Covid, we are seeing an acceleration in the shift towards online in small business lending,' it added.

Numis analyst James Hamilton commented: ‘A new PPP (Paycheck Protection Program) scheme has now been launched (in the US), and we expect there to be a significant amount of pent-up-demand.

‘Consequently, we expect a very strong Q1 performance for Funding Circle, but this will be the last period for both PPP and for CBILS (Coronavirus Business Interruption Loan Scheme) version 1 loans. The government has, however, promised that there will be a replacement for CBILS 1 and going forwards we would expect Funding Circle to originate a blend of loans, traditional as well as CBILS 2 loans.

‘We continue to believe that if Funding Circle can deliver circa 6% returns through the cycle with returns remaining positive even through severe recession, fixed income investors will increasingly asset allocate to this asset class.’

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Issue Date: 18 Jan 2021