Funding Circle grows revenues 50% in first year

Funding Circle enjoyed a strong finish to 2018, with revenues topping guidance from the peer-to-peer business lender's initial public offer in October.

In a year-end trading update, the company, which provides a platform for lending to small and medium enterprise in the UK, US, Germany and the Netherlands, reported that full-year revenue had grown roughly 55% compared to 2017. Ahead of the IPO, management had guided to turnover growth of around 50% for 2018 and "in excess of 40% in the medium term", which it reconfirmed on Thursday.

Loans under management rose to £3.1bn in the fourth quarter, up 55% on the same quarter the year before.

Originations of £683m in the quarter, up 31% year-on-year, led to total originations for the whole of 2018 of £2.3bn, up 40%.

Chief executive Samir Desai, one of the company's co-founders, pointed to a number of new institutional investor transactions in the final quarter of the year, "which is further validation of the attractive risk-adjusted returns generated on the Funding Circle platform".

The British Business Bank, the UK government's economic development bank, in November announced a commitment of up to £150m for lending to UK small businesses through the platform, and in December, Waterfall Asset Management agreed to invest in £1bn of loans originated through UK platform over a two-year period.

Saying that more detailed guidance for the year ahead will be issued alongside full year results on 7 March, Desai was upbeat on the outlook: "We enter 2019 with continuing confidence and remain focused on delivering our growth strategy set out at IPO."

One disappointment was that expected returns for investors from loans that originated in 2016 and 2017 have weakened, which the company said was as a result of the weaker consumer credit environment, which has impacted some loans in higher risk bands.

House broker Numis observed that while the expected returns for investors for the 2016 and 2017 vintages has weakened they are still expected to be 4.7-5.8% in the UK "which remains very strong for a fixed income return", while the return profile was improving with UK returns for 2018 expected to be 5.1-6.0% with the returns from investments made in the second half of 2018 expected to be 5.5-6.5%.

In response, the company adjusted its risk models in the second half, a period that has seen the total amount of SME loans originated almost reaching the total originations for the UK in 2017.

Shares in Funding Circle, which have lost a quarter of their value in their few months since listing, were up 1.4% to 334.47p after a couple hours of trading on Thursday.

Numis added: "We believe consistent and now improving returns in weak and volatile markets should work to attract investors to the group. While Funding Circle's update is strong with revenues ahead, at this point we are not increasing our forecasts for the group for 2019 and beyond but we do take increased confidence from the update."