Guarantor loans provider Amigo Holdings PLC (LON:AMGO) said it remains confident of meeting full-year targets but is taking “cautious approach” to taking on customers amid Brexit uncertainty.
The company, which issues loans typically guaranteed by a borrower’s family or friends, made the remarks as it posted a 37% increase in adjusted profit after tax to £72mln for the nine months to the end of December 2018. Pre-tax profit gained 19.5% to £79mln.
READ: Amigo declares first interim dividend after profits jump in first results since IPO
Revenue rose by 34% to £201mln as the number of customers increased by 28% to 217,000. The net loan book grew by 15% to £13.9mln and net borrowing gained 60%.
The group took an impairment provision of £48.7mln for the period, compared to £31.4mln last year.
The impairment represents 24% of revenue and reflects the adoption of IFRS 9 accounting measures, which requires a provision to be recognised for the orientation of a loan, particularly for guarantor loans that carry higher risks.
“With additional diversified and lower cost funding lines in place, a disciplined approach to credit risk and significant operational leverage, we remain confident of delivering on the objectives for the full year set out at the time of our IPO while adopting a cautious approach to loan book growth due to Brexit uncertainties,” said chief executive Glen Crawford.
Amigo, which floated on the London Stock Exchange last June and was added to the FTSE 250 index in September, increased its securitisation facility from £150mln to £200mln in the nine-month period. This allowed it to buy back almost £60mln of its bonds on the open market.
"Note that the coupon on the bonds is around 5% higher than what is being paid on the securitisation facility, so this action should help to lower the group’s average cost of funding," said Shore Capital, which maintained a 'hold' rating on the stock.
"In addition, the group began lending in Ireland in February 2019. This is its first foray into an overseas market. Overall, based on population, the opportunity in Ireland appears to us to be about one-tenth of the size of that in the UK."
ShoreCap expects Amigo to post an adjusted pre-tax profit of £121.5mln for 2019 and a dividend of 5.4p per share. For 2020, the broker predicts adjusted pre-tax profit of £144.5mln and a dividend of 9.8p.
"Although we retain a formally neutral stance, we note that the shares have drifted recently and are now offering a better entry point," it added.
Shares fell 1.6% to 233p in morning trading.