The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
The problem is, it is not their loan book!! They are a platform that match 'investors' with borrowers. They need to keep pedalling because they only earn from the fees on new loans with a management fee on loans. They do not own their own book.
All the loans are not 100% covered. FCH are currently providing CBILS loans which are 80% covered. They are not yet providing Bounce Back loans. Most of the requirements for BB loans have been met by the banks. There will be very little left for FC. The maximum rate they can charge is 2.5%. The fees will also be restricted. They won't make much on that.
They are an absolute PR machine. If they were delivering CBILS in great numbers they would be rubbing the banks faces in it. At this stage they aren't!! Their systems are struggling, they are not delivering as they had hoped.
When it is going well they will be sure to be shouting about it.
£300m with Starling. This is just another institutional investor. It does demonstrate liquidity which is great. However, they need to be able to deploy the funds (that means finding businesses that meet their criteria and are happy to pay their rates) and then they need to get repaid.
This also does not impact upon their existing loan book they manage on behalf of investors. I would imagine a lrge part of this will be in default and potentially going bad.
I genuinely don't think FCH is a good investment. They are a lending platform. In order to make money they need to keep lending. 50% of their revenue is spent on marketing. They benefited from listing at a multiple of their revenue by been viewed as a tech company rather than a finance company. Listing at over £4 a share. Personally, I can't see this coming good.
Another issue they have in the US is employing decent staff to develop what tech they need. There are other real tech companies with deeper pockets paying for good staff. That is why they moved from San Fransisco.
The FCH model needs understanding. In effect they earn money in 2 ways. They charge a fee upfront and a fee for funds 'under management'. They have stopped normal lending and currently only do CBILS. They are charging a 4.5% fee to the government on each loan. If deals come in from brokers they are splitting this fee. They have stopped taking funds from retail investors (private individuals) and are using institutional investors.
The existing loan portfolio that they manage on behalf of investors is in a mess. Retail investors are unable to liquidate their investments. Type 'Funding Circle Reviews' into Google and read the Trustpilot reports. Unhappy investors across the board. There will be bad debts and arrears on an increasing basis. Think of how many businesses they have loaned money to in the hospitality sector.
Going forward, in a higher risk environment it will be harder to underwrite loans. Institutional investors will want lower risk opportunities or higher returns. They are already charging up to +20%.
In my opinion this model is doomed. The Bounce Back loans will have blown a lot of demand out of the water. they do not have the capability to deliver CBILS in a big way. They were 2nd to the party and the banks have taken all the easy loans. I don't short sell but I would be short selling FCH.
You are right. He has steadily been building a position as have other funds. I would hold it. The C19 situation has been a real catalyst in the US for naked. It's customer acquisition strategy delivers a 4X return. If it were to cut marketing spend it already generates profit. This could show real growth. It is also a good model as it custs out the middlemen meaning everyone is a winner. The producer, naked and the consumer. Amazon are also precluded from selling wine.
I am buying these up. The dividend may be cancelled but the cash remains in the business. They are been asked to preserve liquidity. I think going forward there will be a special dividend and then normal business will return. Just my humble opinion and I don’t profess to be an expert. Good returns to be had on these over 12-36 months. My overall investment horizon is 10 years.
It is important to remember that this business does not have a loan book.
Their investors hold the loan book.
However, they will be forced to tighten credit criteria.
They generate 1% of funds under management. Overheads are high. Marketing costs are astonishingly high.
They believe repeat business will save them. That is on the assumption customers want to borrow again, they are happy to underwrite that loan and investors are providing liquidity.
I think they are finished.
I made a 50%$ return in a week and decided I didn't understand enough about it. Too many external variables. Metal prices, South African power supply, ZAR/USD exchange rate, etc..
It still look astonishingly cheap and I wish holders well but I'll take my profits and consider myself lucky.
I am off to investigate why the Chairman of CKT is buying up shares. There must be a good news story to come there.
Looks like prices could keep rising unless production slows in products that use Palladium. This could happen in the short term with C virus.
With increasing demand and limited production demand should outstrip supply in the short term.
The nice problem to have will be what SLP decide to do with their cash pile.
I think you are right. They have turned a corner. The only concerns I have are larger premises with increase overheads. Staff will take time to train and will take time to start generating income. That could see a bit of a lag in income generation while the overhead is an instant increase in cost.
Having listened to that I don't feel overly optimistic about my position. I may exit with a small profit and watch from the sidelines.
I think there may be a better option of a drinks company expanding in to the US where people can get in early.