Hits: 21

8 June 2020

Amigo Holdings – Market Update

Share Price 17p

Mkt Cap £81m

Conflict Disclosure: No Holding

  • Update Formal sale process ended. Customer complaints have picked up strongly which will require further provisions. Chairman resigns. Dividend cancelled.
  • Estimates The company reported £111m PBT last year and this year’s estimate of £40m may now be too high.
  • Valuation At the last reported half year to September the loan book was £730m and the net tangible assets £245m, some 3X the current market cap.
  • Conclusion It is hard to argue this isn’t cheap. But the founder and 60% shareholder has called an EGM to remove the entire board. If that resolution isn’t passed his instructions to sell 1% /day are not able to be cancelled under any circumstances. There could be an opportunity for the brave either at the EGM or perhaps 60 days after. Meantime tin hats recommended.

28 May 2020

  • Amigo – Yesterday announced the board wishes to recommend a £100m bid conditional on approval of the 60% shareholder but the board has been unable to ascertain the willingness of the 60% shareholder to accept or not. £100m for a £722m loan book backed by £245m equity which made £111m profit last year is unusual.

27 February 2020

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Amigo Holdings – Q3 Update

Share Price 55p

Mkt Cap £260m

Conflict Disclosure: No Holding

  • Update For the 9 month period revenue has grown 8.5% from a loan book up 3.8% to £722m. Impairments are up from 24.5% to 31.5% and the cosy income ratio is up 16% to 20.7%. Profit after tax is down 27% to £46m. Complaints have cost £26.6m year to date and the company is carrying a £18.7m provision. The formal sale process is ongoing and the strategic review has led to a revised lending policy reflecting a lower risk appetite.
  • Estimates March 2020 PAT estimate is for £78m. This may be high given in 9 months the company has delivered only 60% of this.
  • Valuation PER 3.4X yield 17.4% on current forecasts. Sept 19 NAV was £245m, just below the current market cap.
  • Culture Staff reviews are in line with the complaints the company is experiencing.  The £106m gain experienced by the CEO of his pre IPO shares may have been the first sign of the trouble ahead.
  • Conclusion Nothing to see here. Move along. It just a cheap share.

18 February 2020

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Amigo Holdings – Strategic Review Update 

Share Price 49p

Mkt Cap £51m

Conflict Disclosure: No Holding

  • Update A number of indications of interest have been received from several parties by the deadline of last night. Discussions are ongoing.
  • Valuation PER 3.1 Yield 19.5%
  • Conclusion  The highly unusual action of the 60% shareholder putting the company up for sale on a PER of 3 could lead some to suggest that the 60% shareholder may be among the indicators of interest. That action makes this uninvestable but there may be a turn for the agile trader, given there is more than one interested party. I will be staying behind the sofa.

27 January 2020

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Amigo Holdings –  Strategic Review 

Share Price 68p

Mkt Cap £323m

Conflict Disclosure: No Holding

  • Statement Richmond Group (the 60.7% shareholder) is a willing seller and so the company has launched a “strategic review”. The company confirms trading is within guidance for loan book growth and impairments to Dec 2019. Bids are to be submitted by 17 February.
  • Valuation I don’t recall seeing a company trading on a PER of 4.3X and yielding 14% being put up for sale by its majority shareholder before. Price/NTAV is 1.3X.  The only quoted comparator is NSF which trades at 1.7X Price/NTAV with a PER of 7.5X yielding 10%.
  • Conclusion Perhaps NSF may have a look but I imagine the CMA may need to be involved if NSF was to bid for the largest player in the guarantor loans market hampering their chances.  Private equity is the natural buyer but with the regulatory uncertainty over the sector the price is unlikely to be glamorous. Notwithstanding that a PER of 4.3X is a low starting point. The shares could double without looking expensive. But investors at 275p in the July 2018 IPO may feel duped.

9 December 2019

Amigo Holdings – Board Changes 

Share Price 60p

Mkt Cap £288m

Conflict Disclosure: No Holding

  • Changes James Bennamore exercises his right to appoint non executive directors. He appoints himself and Kelly Black, who was a member of Amigo’s founding team. Kelly Black will be appointed once an additional independent NED has been appointed. Strangely the chairman now deems it more appropriate for a new Chairman to be appointed. Hamish Paton, the CEO has also tendered his resignation subject to a 12 month notice period. Having previously been Chief Commercial Officer he was appointed CEO in July this year.
  • Estimates There is no mention of current trading, but results on 28 November confirmed trading was in line with expectations.
  • Valuation PER 3.8X Yield 15.8%.
  • Conclusion With the FCA not making any public statements it is hard to know to what extent these changes are driven by regulators and how much is simply driven by the concerns of the 60% shareholder. I am told the FCA has been “crawling all over” the business, but its not often we have a valuation of 3.8X and a 15% yield with trading in line with expectations. This could be time to take those portfolio enhancing bravery pills. The Chairman’s comments that it has been a “fascinating” experience tell us a lot.

28 November 2019

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Amigo Holdings – H1 Results

Share Price 60p

Mkt Cap £285m

Conflict Disclosure: No Holding

  • Results Loan book up 8.8% to £731m and revenue up 11.8% to £145m. Impairments up sharply to 31.1% of revenue (2019 H1 23.3%) and cost income ratio up to 20.8% (2019 H1 23.3%).  Adjusted PAT down 24.2% to £35.8m. EPS 7.5p. Leverage is 2X. The outlook statement refers to addressing capacity constraints in the business and guidance for the full year is unchanged. 85% of the loan book is up to date (2019 H1 88%)
  • Estimates Year to March 2020 £97.8m PBT is expected and 16.8p EPS with a 9.1p dividend.
  • Valuation On March 2019 numbers the PER is 3.6X and yield 15%. Tangible equity is c. £240m, a little below the £285m market cap.
  • Conclusion It appears the market is not keen on this one trading at a PER of 3.6X. I expect these results may provide some reassurance that despite the issues it is extremely cheap.

28 May 2019

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Amigo Holdings – FY Results 

Share Price215p

Mkt Cap £1.02bn

Conflict Disclosure : No holding

  • Results Customer numbers up 23% year to March and loan book up 17.4% to £707m. Revenue was up 28% to £271m while the impairments increased from 21.3% to 23.7%. Cost income ratio reduced from 21.9% to 17.5% delivering £100.1m PBT. EPS up 21.5% to 22p. Net debt /tangible equity 1.9X. ROE is 36%. Yes 36%. Outlook “cautiously optimistic”.
  • Estimates Results are modestly ahead of expectations. Going forward estimates are based off 17% revenue growth with improving margins.
  • Valuation PER 8.7X.  Yield 4.5%. Price/Book value 4.2X for 36% ROE.
  • Conclusion If this performance is sustainable the shares are wrongly priced. The returns do amount to super profits but with a market leading position in an emerging area the competitive threats look modest as does the regulatory threat.  At worst we may expect the shares to grow in line with profits but at some point a re rating should be expected too. The shares are down 29% over 12 months. .

28 February 2019

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Amigo Holdings – FY Results 

Share Price 237p

Mkt Cap £1.13bn

  • Results The results read well with PAT up 13% to £64.2m and a 1% increase in the EBITDA margin to 20% as well as a reduction in the gearing to 3.7X EBITDA. Underlying ROE is 34.8% and the dividend is up 12.4% to 12.7p from EPS down 25% to 17p. The reason for the drop in EPS is the cost of refinancing is stripped out as are acquisition costs from underlying numbers which appear to me to be a core part of their business model. The IRR was 17% while the weighted average cost of debt is 3.9% with no refinancing due until 2024.
  • Estimates From the number on Stockopedia its not possible to fathom what represents underlying numbers. The rhetoric suggests confidence.
  • Valuation On the actual numbers the shares trade on a PER of 14X while on the underlying the shares trade on 7X while the yield is 5.5%
  • Conclusion Over the last 4 years the weighted average cost of debt has fallen from 6.6% to 3.9% which the company includes in ongoing earnings while stripping out the cost of refinancing. The ROE has been growing partly as a result of this together with strong collections performance. To keep the ROE growing the company is now moving to an asset management model where 1/3 of the income is now coming from third party funds, a little like Intermediate Capital has been doing. The shares are cheap on underlying numbers and not so on statutory numbers.  At this point in the cycle I expect this to remain a value trap until the fund management business exceeds 50% of the revenue.

27 November 2018

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Amigo Holdings – H1 Results 

Share Price 265p

Mkt Cap £1.22bn

  • Results The loan book increased 11% over the 6 month period to £671m resulting in 40% year on year revenue growth to £130m. Imp[airments grew from 19% to 23% primarily as a result of the switch to IFRS 9. Balances are 95.6% paid to terms. PAT was up 40% to £47.2m while basic adjusted EPS are up 27% to 10.8p. Leverage is 2.3X adjusted equity. Cost income ratio has reduced from 23% to 17% as economies of scale apply. Outlook is confident
  • Estimates Revenue for the year to March 19 are for £261m and 21.1p EPS. In H1 the company has delivered 50% of the revenue and 51% of the EPS forecast implying full year numbers are too low
  • Valuation While the company produces 10% ROCE useful leverage, aided by the recent securitisation provides a 44% ROE. The PER is 11X and yield 3.2%
  • Conclusion The securitisation since the period end has reduced funding costs on that £150m of funding by 5%. After some post IPO surprises in terms of founders stepping off the board the company is performing strongly and with upgrades today may recover above its 275p IPO price from July

30 August 2018

Amigo Holdings – Q1 Results  

Share Price 280p

Mkt Cap £1.33m

·         Results The loan book is up 37% year on year to £638m from customer numbers up 39% year on year. Revenue grew 47% to £62.9m while impairments grew from 14% of revenue to 25% of revenue resulting in a 31% increase in PBT to £12.3m. EPS was up 31% to 5.5p. The outlook refers to significant growth potential. The £18.5m of deferred broker costs in the balance sheet seem to be a fair accounting treatment given the 3 year term of the loans. Debt is £460m from a negative eauity of £30m on the balance sheet while shareholder loans were £207m although these results are at 30 June and the IPO was completed on 4 July.

·         Estimates Given revenue in Q2 was 27% of the full year revenue estimate of £235m and the growth rate is fast full year estimates look very conservative

·         Valuation In PER terms the shares trade at 13.9X Dec 18 with an modest yield of 1.5%. ROE is expected to be 41% and the company trades at 5.8X book value

·         View  This company looks to be very strong and reasonably valued as a market leader in the guarantor loans space. The criticism that they are overcharging for low credit risk appears to be rebutted by the impairment rate of 25% of revenue, which is close to that of high quality home collected credit operators

2 July 2018

Amigo Holdings – IPO

Share Price 287p

Mkt Cap £497m

·         IPO This market leading guarantor loans company came to the market on Friday when the prospectus was published.  At first glance the 45% ROE is really rather exceptional. What is more unusual is to achieve that in a year when they grow the loan book at 60%. Usually high loan book growth causes accelerating impairments to destroy the ROE.  Which may suggest one of 3 things: Either the loan is too highly priced and may be competed away or the leverage is too high producing a high ROE or the impairments are wrong.

·         Pricing vs leverage – I have plotted the pricing vs the impairments compared to some comparators below. This shows the reason why Morses Club currently produces the highes ROE. It has a high revenue/ loan book and low impairments.  On the chart below the bottom right hand side are the high returning businesses while the top left are the low retruning businesses. It suggests that Amigo is competitively priced relative to its impairments.  Therefore the answer for the high ROE is the leverage.  The £668m of loan book is financed by £194.7m equity which is 3.4X.  That’s high for this class of lending. The debt comes from shareholder loans and senior secured notes so it seems the quoted 45% ROE is because the senior note funding is available rather than due to excess returns from the underlying business.

·         Valuation The IPO was priced at 275p and the polite first day premium was 5%. The IPO was essentially a sell down rather than to raise new money.  So the company trades at something in the region of 2.5X book value for a business that last year produce an ROE of 45%.

·         Conclusion If these senior notes remain an available funding source these shares are very cheap.