Amigo: this fintech is ready

Founded in 2005, Amigo Holdings PLC (LSE: AMGO, Financial) is a fintech specializing in guarantor loans. These are the types of loans given to someone with bad credit who can call on a trusted friend or family member to back it up.

Amigo has secured 80% of the UK collateral loan market. The company went public in 2018 on the London Stock Exchange at a valuation of 1.3 billion pounds ($1.6 billion). However, in November 2020 the business model was halted by regulators over a number of concerns and the company faced bankruptcy.

As a result, the share price has fallen more than 98% since 2019. However, a high court approved its new business model in May, so it should be able to continue operations very soon (subject to the regulatory approval). The stock jumped 15% in the past 48 hours on the news.

Let’s dive into the story so far, looking at financials and valuation to see if this damn stock is about to rebound.

The bad – discontinued business model

Amigo is the UK’s largest guarantor loan company. The idea is to offer loans of up to 10,000 pounds ($12,300) to people who are excluded from the financial system and cannot borrow due to a bad credit history. They can do this by asking a friend or family member to guarantee the loan. Their loans are classified as “mid-cost” loans with an annual percentage rate of 49.9% and no additional fees. That’s significantly higher than traditional banks, but cheaper than payday loans. However, in July 2020, Amigo received a series of complaints about the lack of accessibility controls and had to pay around £35m to fix them. Its activity was interrupted in November 2020 and the company was on the verge of bankruptcy.

The voucher – approval

In May, a high court approved the company’s new business model. As such, Amigo should be able to continue operations very soon if the Financial Conduct Authority also approves it.

Under the new scheme, Amigo’s total net new loans cannot exceed £35m and it must have at least £112m in the scheme. The idea is to make the new loans more user-friendly with interest-free annual payment holidays offered and methods for customers to lower monthly payments.


Source: Amigo presentation.

The villain – shareholder dilution

If the FCA approves the program, then the company will have to raise more money from investors. Amgo will need £15m raised from investors and £97m from its strong internal cash balance of £110m in unrestricted cash. By raising capital, the company will issue 19 new shares for every existing share, which will result in great dilution for existing shareholders. As a fallback, the company will end the business in bankruptcy.

Fragile finances

At the end of December 2021, the company announced a strong unrestricted cash position of over £110 million excluding debt. Amigo has a net loan book of £180.7m, down 56.2% year-on-year. The number of its customers in arrears (struggling to repay their loans) increased its impairment coverage ratio to 22.4% from 18% in the third quarter of 2021. It has a large provision for claims of 347.5 million pounds. Amigo’s pre-tax profit was £1.6 million, compared to a huge loss of £81.3 million in the third quarter. Positive profitability is a good sign because the company is ruthlessly cutting costs.



In terms of valuation, the stock has a market cap of just £25m, making it truly a small cap stock. However, the £110m of unrestricted net cash means it is in a strong cash position. If we exclude the £97m for the new regime, we are left with £13m, which means the company is currently trading at around twice its future cash position. But remember that this doesn’t take into account future dilution, which could skew the numbers even further.

The company is trading at a price-to-sales ratio of 0.21, which is well below historical levels of 6.


The GF value line indicates that the stock is slightly undervalued relative to historical multiples, past financial performance and future earnings projections.


Final Thoughts

Amigo is a battered and bloody fintech, which recently received a silver lining after the positive ruling. Its brand and in-house office team seem to have a fun, friendly “borrow from your Amigo” style, but the current situation is still shaky.

The company’s new regimen awaits regulatory approval, after which it should be ready to bounce back. The future shareholder dilution adds another element of danger to the investment and makes it difficult to value. So, I think the stock is likely to bounce back, but an investment today would definitely be a speculative bet and it would be one of those trades where I assume any investment has the ability to go zero. Thus, an assessment of the risk-reward ratio must be made.

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