Amigo Loans has become something of a poster child for the guarantor loans industry. Ever since the business was established in 2005 it has been a pioneer of the guarantor loans concept. It’s also one of the industry’s most successful lenders, was the first dedicated guarantor lender to obtain FCA authorisation and is even trading on the London Stock Exchange. However, Amigo seems to be about to hit some rather choppy waters with recent announcements indicating that the lender is expecting “broadly flat” results for the rest of the year.
According to the latest results from Amigo Loans, the business saw an increase in both revenue and pre-tax profits in the first quarter of 2019. In the period up to 30th June revenue increased from £62.9 million in the same period last year, to £71.3 million in 2019. Profits also rose, increasing from £17 million to £22.6 million for the same period. Not only has Amigo seen positive growth in its figures for the first quarter of the year but it continues to attract more customers too. It revealed a rise in its customers to 210,300 from 179,300. However, despite these apparently incredibly positive figures, shares in Amigo have plunged in value – so, what’s going on?
At the end of August this year, shares in Amigo – which is a FTSE 250 company – suffered a big dip. In fact, the value dropped by in excess of 40%. There are two key reasons that have been identified as being behind the loss of confidence that triggered the reduction in value of the shares.
The short answer is: probably yes. Although many commentators have identified the dire warnings from the company for the rest of 2019 as problematic – as well as the slide in the value of shares – it’s unlikely to be the end of the road for Amigo. According to analysts at RBC:
“Whilst these actions will likely adversely impact short-term profitability, we see them as sensible for ensuring longer-term sustainability of a business that remains a leader within a global market.”
The fact that Amigo is being so proactive in terms of taking steps to try and pre-empt the changes that are likely to be the result of Brexit and/or any regulatory changes that are made by the FCA is likely to be seen as very heartening by many.
Amigo has built its business on offering guarantor loans to customers who have bad credit and would be unlikely to obtain finance on their own. The loans are designed to be supported by a guarantor – a friend or family member who effectively agrees to take over repayment of the loan if the original borrower is unable to do so. This model appeals to a very wide range of borrowers, from students with no credit record at all to individuals who are trying to repair their credit history by making regular repayments on a loan. Amigo’s CEO has continued to make the point that guarantor loans fill a gap in the market for many consumers today. There are large numbers of borrowers who simply wouldn’t be able to obtain traditional finance from a bank or building society and it’s these people who may find Amigo’s guarantor finance particularly helpful.
The latest results from Amigo indicate that the business has done well so far this year but is anticipating some tough times in the near future. From FCA intervention to the impact of Brexit there are certainly some challenges ahead.
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