Hi everyone, just been thinking about the situation and thought I’d share to get your take on things and see if it makes sense, so please feel free to chime in!
So provision-wise, obviously claims are a lot more than the market and I were expecting (I was clearly wrong in thinking Amigo were being relatively prudent with their provision, but could only make a judgement based on what I knew before). I thought it was originally prudent given in Q1, only £8.5m of the provision was utilised. Annoyingly big jump to £47m in Q2 (60% in cash which is around £28m).
Running through some of the numbers in my mind here... Provision at June was £116.4m, £47m in redress in Q2 should bring provision down to £69m. However they are saying “actually complaints are going to cost us at least £85m more than we thought before” (this increase in provision will flow through the P&L and is the charge they mention). This will bring us to about a £154m provision at Q2 end remaining for the second half of the year.
So me being more prudent than what the RNS says, I would say maybe they will opt for somewhere between £150-170m of provision remaining as of Q2 end. This means that in H2 2021 (1st Oct to 31 Mar), let’s say that £170m “worst case” will be required to be paid out in redress, so £85m per quarter. This is £38m more per quarter than Q2 (£47m). In FOUR months we only had £5m less cash, I would say this time we will probably lose £25-30m of cash per quarter because of the higher complaints. So I think a reasonable worst case would leave us in March 2021 with £80-90m of cash remaining, and in a position where we should’ve already started lending. I’m quite happy with this position - it’s based on a downside case, gives us headroom for any (further) bad surprises (complaints and/or FCA), and doesn’t take into account any positives from restarting lending.
I know we have some other potential problems to sort out, namely the securitisation facility and bond refinancing, but for me these are not as immediate issues as the complaints problem. They kind of go hand in hand, but I think once complaints are managed appropriately, the debt will take care of itself because the business will be in a finance-able position.
The main positive for me that I mentioned before, is that after servicing debt (amortisation and interest), and of course all the other operational aspects of the business - over the last four months our cash balance only went down by £5m (from £145m in June to £140m in October), so this isn’t a problem at all in my view. AND btw just so we are all aware, this would include the redress paid in Q2 which was larger than expected AND one extra month (October).
Anyway, those are my two cents for what it’s worth, would love to hear your thoughts on the above!
I’m going to go with 8.2p
... today hasn’t been the best admittedly. The main solace I am taking out of this is that in four months of high volume complaints (End of June at £145m until end of Oct at £140m), the cash balance only reduced by £5m so think we can weather the storm for a while until things are in order. Just unfortunately may take a bit longer than I had thought previously...
Mri I’d be happy if it just goes up and carries on going up if that’s alright with you?
It’s good to see that, seems to be a bit of a shift in strategy from Amigo to not just take these complaints lying down - but instead actually challenging them and/or confirming with the regulators what is the correct thing to do (I like this idea of having a dialogue with the FCA on complaints, shows that they are trying to do the right thing and gives them a better idea too).
Thinking about it, this timing coincides with Gary coming in as CEO, and probably the conclusion of spending those few days with the complaints team... if that’s true, good on ya Gaz!
...of an order of over a million shares at 9.49!
I think we will get an RNS on Friday as that’s 30 Oct, could potentially slip until Monday but should be Friday
I agree Franky, there are a whole host of problems and debt is potentially one.
The securitisation facility and bond interest are being paid down with collections and we are still very cash generative post servicing of that which is why at the moment it’s one of the lesser issues that I see. Agree it shouldn’t be ignored though. The bond is due in 4 years and can be refinanced in a few years when the business is solidly back on track (no default issues since Amigo can easily pay the interest at the moment).
But you can only carry on collecting for so long before we need to restart lending for the future...
@ns20, it’s refreshing to see cautious optimism instead of mindless ramping and deramping. I think we’re broadly in line with our expectations actually, let’s hope the next month or so is positive for Amigo news and we get rewarded for our patience going forward.
I’m not entertaining any takeover thoughts at the moment - I can’t quite see this happening with the uncertainty atm, but you never know!
Hi Gabriel and all, thanks for your input.
Since we’re talking about predictions, and you’ve seen some of the numbers I’ve been running with regards to complaints which I think we should be ok with in the end, I’ll throw in my two cents. I’m a little bit more cautious on how quick we’ll get to 40-50p, only because I’ve been digging through reviews on Trustpilot and others and I’m seeing plenty of complaints not being dealt with within 8 weeks, but plenty that are on the other hand. So I think this is what will happen over the next few months (and how the market will react):
- RNS on Mon 2nd Nov saying we’ve made tremendous progress in clearing the backlog and dealing with complaints, not quite there yet and they continue to come in as expected (risk that the market may take this a bit negative initially, but then people realise good progress has been made)
- RNS with some board additions/changes as GJ said in video (neutral reaction from market)
- H1 results by 26 Nov, showing not much diff to Q1 - still profitable, cash balance increasing to around £170-175m (building up a nice buffer), about £15m complaints provision used in Q2 and total provision to remain broadly unchanged, complaints steadying and not ballooning as before. (this should be positive news and will start an uptrend in SP)
- RNS end of Nov (maybe same time as H1 results) saying that we will start relending in the first week of Dec and ready to hit the ground running (lift off for share price up to 20-25p)
I think once we get properly positive news on complaints and relending leading to more certainty, only then will II’s / bigger buyers flood in. I reckon they are waiting there and ready to jump in, but just not yet, so I think it would be an explosive rise when it does happen.
You all know I think this business is worth 40p/50p plus easily with certainty so I don’t see the point in selling too early, but I’m sure along the way there will be some minor spikes/sell-offs from traders and some guys topslicing, but this is to be expected - I certainly don’t think it will be as dramatic as before though because I think we’ve lost a fair few of those 20p target holders when JB lost.
Let me know what your thoughts are on the above?
Oh good, glad it’s not just me Seamus!
Could well just be a few people keen to make sure they don’t miss anything over the weekend / Monday morning, but I must admit I’m not expecting anything before the end of Oct. Would be very happy to be wrong though!
Lots of blue streaming in, could be the start people trying to get in before the weekend, MM’s letting it go a bit, whatever it is let’s hope it continues!
Gabriel, if you are on the board, get back to work and start fixing Amigo! ;)
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!
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
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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.
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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 :)
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!
Yes come on guys, the 20p was the take profit target for short term speculators based on the 20.9p offer and/or JB’s infamous offer if he got voted in... I think it seems most of these guys have either sold out or converted to mid to long-term holders by now.
If the issues get resolved (complaints) and we restart lending (soon!), then I don’t think many people will be selling out at 20p any more, I know I certainly wouldn’t! Because as you are all saying, if this is resolved then the value of the business is instantly multiples of where it is now so why would we sell at 20p???
It’s risk vs. reward atm yes, but for us guys who are still holding, we have our own level of comfort and I’m sure we wouldn’t be holding at this risk for only a 50% or so gain. It’s not worth it, at least in my view. Worth it for day traders who jump in, but not us guys. I’m of the view that it’s either worth 50p+ or nothing, and I’m comfortable enough to hold because I think things will get sorted out imminently and it’s the former rather than the latter! Just my thoughts anyway...
Thanks Gabriel. Yes I definitely think a lot of stop losses were hunted and taken out on Monday. Let’s wait and see, hopefully some big money has been coming in in the background as you say.
So what we have to look forward to RNS-wise to help with the business and share price is:
- Potential Tr1’s (still amazed nobody has taken a view to get above 3% yet, although there may be some guys sitting just below waiting)
- Complaints VReq (end of Oct)
- Relending due to, or has started (Early Nov or some time in Nov?)
- Half year results (by end of Nov)