Friend: This Fintech is ready


Founded in 2005, Amigo Holdings PLC (LSE: AMGO, Financial) is a fintech company that specializes in secured loans. These are the types of loans made to someone with a low credit score that a trusted friend or family member can use to secure it.

Amigo secured 80% of the UK collateral loan market. The company went public in 2018 on the London Stock Exchange at a valuation of £1.3bn ($1.6bn). However, in November 2020, regulators halted the business model due to a number of concerns, and the company faced bankruptcy.

As a result, the stock price has plunged more than 98% since 2019. However, a higher court approved its new business model in May, so it will be able to continue trading very soon (subject to regulatory approval). The stock is up 15% in the last 48 hours on the news.

Let’s dig into the story so far, looking at financials and valuation to see if this damn stock is ready to rebound.

The bad – stopped business model

Amigo is the UK’s largest secured loan company. The idea is to offer loans of up to 10,000 pounds ($12,300) to those who are locked out of the financial system and cannot borrow due to poor credit history. They can do this by asking a friend or family member to endorse the loan. Their loans are classified as “mid-cost” loans with an annual percentage rate of 49.9% and no additional fees. This is significantly higher than major banks, but cheaper than payday loans. However, in July 2020, Amigo received a number of complaints about the unaffordability of checks and had to pay an estimated £35m to remedy them. His business stopped in November 2020 and the company was on the verge of bankruptcy.

The good – approval

In May, a high court approved the company’s new business model. As such, Amigo is set to continue business very soon if approved by the Financial Conduct Authority as well.

Under the new scheme, Amigo’s total net new loans cannot exceed £35m and he must have at least £112m in the scheme. The idea is to make new loans more customer-friendly with interest-free annual payment holidays and methods that allow customers to lower monthly payments.


Source: Friend Presentation.

The ugly – stock dilution

If the FCA approves the plan, the company will have to raise more money from investors. Amgo will need £15m raised from investors and £97m from its strong internal cash balance of £110m in unrestricted cash. By raising capital, the company will issue 19 new shares for every existing share, resulting in huge dilution for existing shareholders. As an alternative solution, the company will take the business out of business.

unstable finances

At the end of December 2021, the company announced a strong unrestricted cash position of over £110m excluding debt. Amigo has a net loan portfolio of 180.7 million pounds, 56.2% less than last year. The number of its clients in arrears (struggling to pay back loans) has increased its impairment coverage ratio to 22.4% from 18% in Q3 2021. It has a large complaints provision of 347.5 million of pounds. Amigo’s pre-tax profit was £1.6m, against a huge loss of £81.3m in the third quarter. Positive profitability is a good sign, as the company cuts costs ruthlessly.



In terms of valuation, the stock has a market capitalization of just £25m, making it a true small-cap stock. However, £110m in unrestricted net cash means it is in a strong cash position. If we exclude the £97m from the new plan, we have £13m left over, meaning the company is currently trading at roughly double its future cash position. But remember that this does not account for future dilution, which could further skew the numbers.

The company is trading at a price-to-sales ratio of 0.21, well below historical levels of 6.


The GF value line indicates that the stock is modestly undervalued relative to historical multiples, past financial performance and future earnings projections.


final thoughts

Amigo is a battered and bloody fintech, recently given a ray of hope after the positive ruling. Her brand and the back office team seem to have a fun and friendly “borrow your Friend” style, but the current situation is still unstable.

The company’s new scheme is awaiting regulatory approval, after which it should be ready to pick up. Future shareholder dilution adds another element of risk to the investment and makes it difficult to value. So I think the stock is likely to rally but a reversal today would definitely be a speculative bet and this would be one of those trades where I would assume that any reversal has a chance of going to zero. Therefore, an assessment of the risk-benefit ratio should be made.


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