registerme
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Post by registerme on Jul 12, 2019 22:43:45 GMT
A few months prior to the FC IPO announcement I had dinner with a fairly big hitting fund manager friend of mine. One who'd been schmoozed by the FC IPO teams in play. After I'd explained my experience, as a lender, and the experience of a friend of mine who'd been a borrower (and who paid off his loan!), she declined to take a piece. hhmm, she maybe owes me dinner (again) .
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rocky1
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Post by rocky1 on Jul 13, 2019 3:23:08 GMT
Latest tv ad campaign must be costing a fair bit.seems like very good rates if you are a borrower.
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reinvestor
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Post by reinvestor on Jul 13, 2019 6:12:22 GMT
Latest tv ad campaign must be costing a fair bit.seems like very good rates if you are a borrower. Firms that lend to consumers have to quote a typical APR that 51% of all borrowers get upon application. As FC only lend to business, these rules do not apply as it is unregulated lending. FC can advertise their 1.9% rate as much as they like. It doesn’t mean any business is offered that rate and I strongly suspect none are.
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Post by 2naphish on Jul 13, 2019 7:43:42 GMT
There are 1.9% loans, I am fortunate enough to have a share of one. So FC get 1% and I get 0.9% and all the risk
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djay
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Post by djay on Jul 13, 2019 10:38:00 GMT
There are 1.9% loans, I am fortunate enough to have a share of one. So FC get 1% and I get 0.9% and all the risk Unfortunately it's far worse than this, it's in FCs interest to advertise and provide low cost loans at the expense of lenders, and we have no control over the rates and loans we invest in On top of the 1% from us they take in large fees upfront, so FC get large sums risk free that dwarf the 0.9% you received. Unsecured and secured business loans fees 6 months - 1 year 0.9%- 4.9% 2 - 3 years 2.9%- 6% 4 - 5 years 4.5%- 6% Asset finance 6 months - 5 years 5%** In addition if it is 7 days late with a repayment FC receive a 15% fee on the outstanding payments, investors usually receive nothing (there is an uplift to lenders that can be applied but is not applied enough). If it defaults, there is a 15% of the outstanding loan amount charge to FC. The model is full of incentives to originate as many loans as possible, late loans are lucrative for FC and with little incentive to treat lenders well....until of course the default rates got out of hand, lenders started to see through the rose tinted return data we are provided with and started to leave the platform.
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dorset
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Post by dorset on Jul 13, 2019 13:00:13 GMT
FC claim that theirs is a unique business. They are right it is unique and will continue to be so because in actual fact there isn’t a viable business there.
Why? First the FC business model is dependent on huge operational gearing. In other words they have to work with very low margins – 1% on loans under management and between 1%/7% from the borrower when the loan is written. The result is that with £3.5 billion of loans under management they still make a loss of £50 million. In general markets expect an EPS of at least 15% which would require FC to produce a PAT of over £225 million to sustain the IPO share price of 440p.
Where are the many many £billions of new loans going to come from to make that possible? All small businesses have a bank which of course is not FC. Each business will be assigned an account manager from the bank. A bank makes money by lending to these businesses and the account manager will know each of the businesses in his/her portfolio quite well. FC picks up businesses which the bank says no to while FC cannot complete on the cost of finance where the bank decides it wants to write the loan.
FC still does and in the earlier days certainly did write some decent loans but to grow at the rate the market now expects FC will have to seek out a massive new sector of borrower demand which doesn’t in fact exist (unless it wishes to become the business equivalent of the pay day lender by filling its loan book with some of the c**p which arrived between 2016 and 2018).
Where does FC go from here? No idea but I must state my admiration for the FC founders who convinced the IPO market to value this business at £1.5 billion.
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zccax77
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Post by zccax77 on Jul 13, 2019 13:08:32 GMT
You also forget that the banks have intimate data about these businesses all gleamed from their bank accounts.
Sameer and the investment banks which IPO'd this POS at 440p should be in prison.
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djay
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Post by djay on Jul 13, 2019 13:29:54 GMT
Personally, as a lender I am pleased by these updates. Demand is down (to be expected in a slowing world economy and Brexit uncertainty) and lending criteria tightened. Despite this FC now expect 20% growth in revenue. Not as good as 40%, but still pretty reasonable compared to most companies. Of course this is Bad news for shareholders and those trying to ditch the cr@p cohorts. And I’m pleased FC aren’t selling those dodgy cohorts quickly and stuffing them to new, or reinvesting, investors. It means we get a better “mix” of loans. Good news (potentially) for those new to FC or reinvesting. Mug punters always sell out on the bad news and when blood is on the streets. Successful punters do the opposite. I freely acknowledge I may be (very) wrong and will report back end of year on whether I have been dining on cat food or caviar..... Either way 20% revenue growth pa ain’t bad. The issue here, as indicated in the recently published statutory annual accounts, is that although a profit margin is made on loans after taking direct costs into account (segment EBITDA), this profit margin is insufficient to cover what are classified as overhead costs. FC needs really substantive growth in loans volume to generate enough loans profit margin to cover overheads costs and it is difficult to see where that growth is going to come from. Whilst a 20% year on year growth in business would be phenomenal for many businesses, FC needs a lot more than that for many years into the future to move properly into sustained substantive profit. FC advises that it is spending around 40% of annual income on ‘marketing’ costs. This is extremely high. Given that the annual report advises that 43% of income is repeat business, it is not unreasonable to assume that the 40% of income that is spent on marketing costs is skewed towards bringing in the other 57% of business, thereby hitting hard the profit potential of new first time loans. Whilst promotion is obviously necessary for any business, any continuation of such high acquisition costs at FC is going to be a drag on the move towards profitability and upon free cash flow generation. It takes a while for new businesses to gain traction in the marketplace and losses or low profitability are to be expected in the early years. However, FC have been a key player in the UK for many years now and yet they still are not making a profit here. It is not unreasonable to question the viability of the FC business plan and to ask the senior management when they expect to achieve sustained profitability. The extremely long annual report is excruciating in the lack of focus on explaining how FC is going to move into profitability. The cost of advertising and of bringing in new customers is the overriding reason FC are not profitable. It could be justified to shareholders as an expense of rapid growth and establishment in the marketplace. However, it appears to be headless Ill directed marketing with ridiculous wastage. The number of times I have seen their lending tv advert is ridiculous and I don't watch much TV-there doesn't seem to be much in the way of targeting to the scheduling of it, more like we have made an expensive TV advert, we must use it as much as possible. However worse than this is the direct marketing, the number of FC letters, gimmicks and other materials I have received through the post is ridiculous even after telling them to stop it. I receive the same for previous owners of my home property and for myself at my previous address. It is duplicated for each of my companies, and even for new companies (which will therefore not fit FCs lending criteria). I understand throw the net out wide, but there is clearly ridiculous wastage in their advertising costs that could and should be controlled.
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Post by Mr Smith on Jul 15, 2019 13:15:59 GMT
116.69 GBX −5.51 (4.51%)
Heading for new lows.
The dead cat has well and truly bounced.
I have 2/3/4 weeks before my next sale goes through, if I get my cash out I'll be very happy.
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ashtondav
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Post by ashtondav on Jul 15, 2019 17:01:25 GMT
116.69 GBX −5.51 (4.51%) Heading for new lows. The dead cat has well and truly bounced. I have 2/3/4 weeks before my next sale goes through, if I get my cash out I'll be very happy. You mistake the misfortunes of the shareholder with the better fortunes of the lender. This is easy to do if you take a simplistic approach. The shareholder is suffering because FC have lowered revenue guidance because they are targeting better quality borrowers. The lenders (those who aren’t flogging their cr@p) are benefitting by exposure to this new policy and not being diluted by the sale of the cr@p - which is why sales are taking too long. So FC are quite rightly prioritising the new lenders, and reinvesting lenders, over the short term sellers and shareholders. Seems very sensible to me. I do maintain a healthy scepticism and have previously said I will report at year end whether i feast on cat food or caviar....
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dorset
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Post by dorset on Jul 15, 2019 17:36:16 GMT
116.69 GBX −5.51 (4.51%) Heading for new lows. The dead cat has well and truly bounced. I have 2/3/4 weeks before my next sale goes through, if I get my cash out I'll be very happy. You mistake the misfortunes of the shareholder with the better fortunes of the lender. This is easy to do if you take a simplistic approach. The shareholder is suffering because FC have lowered revenue guidance because they are targeting better quality borrowers. The lenders (those who aren’t flogging their cr@p) are benefitting by exposure to this new policy and not being diluted by the sale of the cr@p - which is why sales are taking too long. So FC are quite rightly prioritising the new lenders, and reinvesting lenders, over the short term sellers and shareholders. Seems very sensible to me. I do maintain a healthy scepticism and have previously said I will report at year end whether i feast on cat food or caviar....
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dorset
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Post by dorset on Jul 15, 2019 17:38:52 GMT
A bit confused over your logic ashtondav.
If loans being written have fallen due to extra DD and inward investment cash flow stays the same then the time to sell resales has to drop. If it hasn’t dropped then you seem to be suggesting that FC may be deliberately drip feeding resales of the 2016/2018 loans into the market because of the amount of c**p they contain. Balloon would really go up if that is what they doing.
Sorry but the FC share price has dropped to 125p from 440p because the market is finally realising that there isn’t a viable business here after all and not because sales growth is lower than expected.
Again time will tell who is right about this one.
[apology about the double post]
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Post by Deleted on Jul 15, 2019 19:13:04 GMT
In the latest Annual Report, the Consolidated Balance Sheet for the aggregate of the various FC companies showed a net worth of £430.1 million as at 31st December 2018. The net worth represents the best estimate of the expected proceeds from liquidating FC and selling off whatever can be sold off. Included in that figure is £333.0m of cash or cash equivalents, most of would have been the IPO cash.
The market value (total number of shares x today’s share price) as at 15th July 2019 is £418m.
The difference between the Balance Sheet date net worth of £430m and the current market valuation of £418m could reasonably be assumed to reflect in part ongoing losses between the two dates.
The issue here is that the market for shares is saying that it does not believe that FC is going anywhere and that it does not have a profitable business. If it did believe that there is a potentially profitable business at FC, the market value would be at a premium to the last Balance Sheet net worth.
Unless something drastic happens, a loss making FC would take several years to burn through the cash on hand so is not immediately in any danger of going bust through lack of cash liquidity.
However, given the ongoing loss making situation. given the stock market view, given the liquidation of the Investment Trust due to poor performance, and given falling returns for the small lenders and dissatisfaction amongst some small lenders, there are all sorts of red lights flashing for FC.
To me, Dorset’s analysis looks spot on!
So if anybody is thinking of buying FC shares either on a short term day trading basis or on a longer term investment basis, please do thorough research so that you know what you are getting into before hitting the buy button
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blender
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Post by blender on Jul 15, 2019 20:32:05 GMT
A bit confused over your logic ashtondav. If loans being written have fallen due to extra DD and inward investment cash flow stays the same then the time to sell resales has to drop. If it hasn’t dropped then you seem to be suggesting that FC may be deliberately drip feeding resales of the 2016/2018 loans into the market because of the amount of c**p they contain. Balloon would really go up if that is what they doing.Sorry but the FC share price has dropped to 125p from 440p because the market is finally realising that there isn’t a viable business here after all and not because sales growth is lower than expected. Again time will tell who is right about this one. [apology about the double post] They have said to The Times that they are doing that - they have no shame. See this post from p2pete. It caused me to humbly apologise for purchasing an 'underperforming cohort'. p2pindependentforum.com/post/333507/thread
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dorset
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Post by dorset on Jul 16, 2019 16:52:33 GMT
Thanks for the link blender I had missed that announcement.
To summarise then:
FC dramatically pumps up the loan book 2016 to 2018 by lending to any business which fancies the cash with the aim of making the market think that FC is a business with huge growth potential. As a result it gets the shares away at 440p and the founders become millionaires plus plus.
By early 2018 defaults are going through the roof and lender returns are barely positive as the c**p in the loan book rises to the surface. Early 2019 increasing numbers of lenders decide to cash out but find that they have to wait 70+ days to get out. This is partly because FC does not want to resell the c**p they issued to the 2018 lenders onto the 2019 lenders.
Early 2019 loan growth falls off and the share price tanks from 440p to 125p as shareholders realise that all is not well in the land of Faulty Contracts. Cannot think of any other IPO which, 9 months after launch, had lost 70% of its value.
Winner – FC founders.
Losers - FC shareholders (big time) and FC lenders and especially lenders wishing to get out.
Ultimate loser – FC reputation which must be in tatters.
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