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Wait until Q2 complaint numbers come out, they will be far worse than Q1. AMGO have 6 years worth of complaints to pay back which will likely see another 12 months of sustained complaint numbers before the volume drops off. These numbers are going to get worse and worse.
Covid Business loans
Customer applies for loan from bank : sorry you do not meet affordability checks we can not give you the loan.
Customer applies for Covid loan : here you go have £50k
Few months later Customer is unable to afford loan repayments Even at 0% interest
FCA : nothing to see here!
Amigo: checks customer and guarantors for small loan - they reach all All affordability levels and checks Approved by FCA 2 years ago, and have confirmed they understand the terms.
Customer makes all payments not missing a single one and is happy.
FCA - you failed to asses them correctly.
Yes exactly as you say Jimmy, that £16.5m was just FOS as we have no idea what Amigo is receiving separately. Can see we’ve both calculated the same way, so as you say it does look like they’re a bit more optimistic as of Q1 assumptions anyway!
I’d say the only thing we maybe have as a benchmark is the £6.8m complaints expense (or the £8.5m provision used is probably most helpful) in Q1 which I know we can expect to increase throughout the year to reflect the increased complaints, but even that isn’t catastrophic.
£8.5m x 4 gives £36m if it stays in line with Q1 - perhaps we’ll be looking at something north of £50m for the whole year? Even if it is double that which I think is extreme, it’s £72m. Actually this would be close to the 12,800 successful complaints expected multipled by the average redress expected £5,550 (£71m). Personally I think that would be worst case this year, and that would be reaching... but we should be prudent!
Cheers Murphy, your numbers make total sense to me. I also got my calcs by using the sensitivity variances to work out what the starting assumption was and it all knitted together (ish). I think we used the same method, you're just using a more up to date version. It's really positive that there seems to be an improvement in the numbers from FY results to Q1 results. I think this means that both volumes and average payout have come down since FY results (uphold rate looks same at 40%).
My only question is that I think your £16.5m total redress bill is just based on FOS complaints? I'd assumed that the others that have been budgeted for were what Amigo expected to pay out on complaints they deal with direct, that don't go to FOS. I think that's going to be on top of your FOS bill? Until we know what kind of volumes are being dealt with by Amigo direct, it's hard to know what that cost is likely to be. But I'm really pleased that the picture has improved between FY end and Q1 end.
Hi Jimmy, no worries and likewise mate. I’ll share my calcs below for all to see (And this is based on the provision sensitivity table and all notes in the Q1 report), they’re not far off yours:
- Total successful complaints = 12,800 (based on the £500 average redress sensitivity in point 3 below)
- Based on points 1&2 in the sensitivity below, we can also iterate and backsolve, which leads me to a round 32,000 total complaints with a 40% uphold rate (which gives the 12,800 successful complaints). So this would have to include all claims received (pre FOS and including FOS)
- With those above figures, you can play with the sensitivities to see these are the figures Amigo must be assuming
- e.g. if you change the volumes by 20% as in point 1 of the table (so 32,000 becomes 38,400) and then apply the 40% uphold rate, it becomes 15,360 successful instead of 12,800 (an increase of 2,560 successful complaints), it leads you to an average redress of £5,547 (by dividing £16.5m by 2,560)
- A way to check it definitely works is if you change the uphold rate by 10% as per point 2 in the sensitivity table (from 40% to 50%), you end up at 16,000 complaints (instead of 12,800) which is an increase of 3,200 complaints. Multiply this 3,200 by the £5,547 and you end up at their +/- £17.8m
I hope you’re all still with me here??? I’m quite sure these are their assumptions because it works when you play around with sensitivities. At least it gives us what they are thinking, which I still maintain seems relatively conservative.
So I’m looking at the Q1 announcement which is more up to date that FY2020, see figures below. https://amigoloans.cdn.prismic.io/amigoloans/6137b53b-9435-4fc5-a138-6c150b399c24_announcement.pdf
***********************
Assumption Sensitivity £m
Complaint volumes1 +/- 14.2
Average uphold rate per complaint2 +/- 17.8
Average redress per valid complaint3 +/- 6.4
1 Future estimated volumes. Sensitivity analysis shows the impact of a 20% change in the number of complaints on the provision.
2 Uphold rate. Sensitivity analysis shows the impact of a 10 percentage point change in the applied uphold rate on the provision.
3 Average redress. Sensitivity analysis shows the impact of a £500 change in average redress on the provision.
***********************
Sorry, those links included the final bracket and don't work. They should be:
https://polaris.brighterir.com/public/amigo_loans/news/rns/story/x4zlz3r
https://www.amigoplc.com/investors/annual-report-2020
Thanks Murphy, good to see your thoughts on complaints. My calcs are based on the table in Section 2.3 of the full year results 2019/2020 (https://polaris.brighterir.com/public/amigo_loans/news/rns/story/x4zlz3r) :
Assumption Sensitivity £m
Complaint volumes1 +/- 16.5
Average uphold rate per complaint2 +/- 20.6
Average redress per valid complaint3 +/- 7.9
1 Future estimated volumes. Sensitivity analysis shows the impact of a 20% change in the number of complaints on the provision.
2 Uphold rate. Sensitivity analysis shows the impact of a 10 percentage point change in the applied uphold rate on the provision.
3 Average redress. Sensitivity analysis shows the impact of a £500 change in average redress on the provision.
By my maths, the provision is based on roughly 40,000 complaints received, 40% uphold rate (so 16,000 payouts) and average redress of around £5,000 (I've approximated)
What we don't know is how actual complaints volumes and outcomes are tracking against those assumptions. Having seen how quickly CMCs can get stuck into a sector, and given Amigo has probably had half a million customers, and given FOS uphold rates and compensation amounts are very high (I think PPI typically resulted in a £2,000 payout), and given Everest forecast of a £300m bill, I am not banking on any of the provision being returned to the company. The H1 data from FOS is, as I understand it, January - June 2020 (not Q1 and Q2 of FY). Whilst still low, they show a big increase on previous volumes and we know complaints volumes have also increased significantly more recently (this is what prompted the increased provision in July). I'm eagerly waiting for latest data on volumes, hopefully we'll get a complaints VREQ update soon. Until we get that, and it shows some positive trends, I'm not banking on any of the provision being returned.
What I'm struggling to square is two seemingly contradictory statements about whether the provision is intended to be the total amount ringfenced for complaints (see page 30 - https://www.amigoplc.com/investors/annual-report-2020):
the provision relates to both the estimated costs of customer complaints received up to 31 March 2020 AND THE PROJECTED COSTS OF POTENTIAL FUTURE COMPLAINTS where it is considered likely that customer redress will be appropriate, based on the available data on the type and volume of complaints received to date.
with this one:
THE PROVISION IS NOT INTENDED TO COVER THE EVENTUAL COST OF ALL FUTURE COMPLAINTS; such cost remain unknown. There is significant uncertainty around: the emergence period for complaints; the activities of claims management companies; and the developing view of the FOS on individual affordability complaints, all of which will significantly affect complaint volumes, uphold rates and redress costs.
To be clear - My general point was that I think the board have been quite prudent with the complaints provision based on the figures I can see. I think that’s good news for us investors
Hi 67amg - The things missing are what they are paying out before anything reaches the FOS, and the uncertainty of what the FCA will do (fine?) I think which is what’s causing the sp to be suppressed.
And of course my maths could be way off! But was just a quick estimate :)
Or circa 36p per share cash value
Q1 results.
"The complaints provision includes a combination of estimated redress for known cases and an allowance for future claims. £8.5m of the provision was utilised in the quarter, representing redress, of which around half was settled with cash and the remaining half in balance adjustments. An incremental cost of £6.8m has been recognised in the income statement. The remaining provision on the balance sheet as at 30 June 2020 is £116.4m. "
could and should well be higher, as they are still not lending to the masses.
plus I think they had or have the bond coupon payment to bare in mind. ( ~£9m if its paid twice a year)
Murphy your calculations are spot on if we allowed another £5 million for complaints paid out , not bad at all in the scheme of things
If those maths were correct ish
The market cap would jump because amigo have over 100 million to pay any
Complaints if indeed 20 million was paid out in claims the PPS increase would triple
The market cap and consequently the share price
Itsagame, Surely its more than £145m now with interest ? I thought I heard it was £160m , of course i could be wrong.
https://www.financial-ombudsman.org.uk/files/284921/Business-complaints-data-H1-2020.xlsx
Link to the FOS excel above. They publish half-yearly, unfortunately not quarterly, for complaints received and upheld. I make it 1,163 complaints with 87% upheld (So c. 1,012 upheld complaints) from Jan to Jun this year. Quite frankly, this isn’t that bad even if Jul onwards has massively increased.
Some quick maths: At £550 fee per case (I think it is, and first 25 cases are fee-free), it’s just over £625,000 in fees for the first half which is annoying but not huge. I’d say this may be £1.5-2m in FOS fees for the whole of 2020 if complaints rise being prudent (I’m assuming 3,000 cases in the whole year).
So fees-wise it’s not too bad - the thing we don’t know is what should we assume as an average redress per customer that’s being paid out by Amigo? I had a look at the sensitivities table for complaints in Amigos Q1 results, and to me after working some numbers, I think it looks like it’s around £5,500 (I guess this would be the loan paid back, interest, compensation, etc.). By my calcs I think they’re also assuming around 12,800 complaints to be upheld or paid out which covers past and future expected complaints (so I think that’s actually quite prudent). If this is the case, £5,500 x 3,000 cases is around £16.5m in redress that maybe we can expect in 2020 (plus the £1.5-2m in FOS fees)?
In any case I think this leads to less than £20m of complaints costs this year, being very prudent. The only thing this doesn’t include is if they are settling anything before it gets to an FOS complaint - has anyone seen anything on this, or have any rough calcs or thoughts on that?
The above are my back of the fag packet calculations for FOS related costs this year - hope you guys are with me in understanding how I arrived at that. Let me know your thoughts? Be interested to hear your views... I think it doesn’t look that bad!
Both reference end of Q1 2020. So even after the 1161 complaints we still had £145m?
£145.2m of cash and cash equivalents as at 30 June 2020
"Banking and credit complaints H1 2020 Amigo Loans 1,161"
Thanks olly
Thanks Guys, Come on Amigo lets go Blue big time tomorrow!!
Cardinal, my thoughts exactly.
What board am I on again?????????????
Cardinal - HERE HERE : )
I'll never leave you Cardinal :)
Guys don't forget those of us who don't use twitter lol
Followed olly, Mikey