Amigo: This fintech is ready


Amigo Holdings PLC was incorporated in 2005 (LSE: AMG, Financial) is a fintech company specializing in guaranteed loans. These are the types of loans given to someone with bad credit who can use a trusted friend or family member to secure it.

Amigo secured 80% of the UK guarantee loan market. The company went public in 2018 with a valuation of £1.3 billion ($1.6 billion) on the London Stock Exchange. 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 stock price has plummeted over 98% since 2019. However, the new business model was approved by a Supreme Court in May, allowing the business to resume very soon (subject to regulatory approval). The stock is up 15% over the past 48 hours on the news.

Let’s dive into the history so far and take a look at the financials and valuation to see if this damn stock is poised to rally.

The bad – business model stopped

Amigo is the UK’s largest guarantee loan company. The idea is to offer loans of up to £10,000 (US$12,300) to those who are locked out of the financial system and unable to borrow due to a bad credit history. They can do this by asking a friend or family member to support the loan. Their loans are classified as “mid cost” loans with an APR of 49.9% and no additional fees. This is significantly higher than mainstream banks but cheaper than payday loans. However, in July 2020, Amigo received a spate of complaints about a lack of affordability checks and had to pay around £35million to fix them. Operations ceased in November 2020 and the company was on the brink of bankruptcy.

The good – agree

In May, a Supreme Court approved the company’s new business model. As such, Amigo will be able to continue in business very soon if the Financial Conduct Authority also agrees.

Under the new scheme, Amigo’s total net new lending must not exceed £35m and there must be at least £112m in the scheme. The idea is to make the new loans more customer-friendly by offering annual interest-free payment holidays and methods customers can use to reduce monthly payments.


Source: Amigo presentation.

The Ugly – Shareholder Dilution

If the FCA approves the scheme, the company will have to raise more money from investors. Amgo will need £15m from investors and £97m from its strong internal treasury of £110m in unrestricted cash. The capital increase will see the company issue 19 new shares for every existing share, which will result in huge dilution for existing shareholders. As a fallback solution, the company will drive the operation into bankruptcy.

Shaky finances

At the end of December 2021, the company announced a strong unconditional cash position of over £110m with no debt. Amigo has a net loan volume of £180.7 million, down 56.2% year-on-year. The number of its delinquent customers (who are struggling to repay loans) has boosted its impairment coverage ratio to 22.4% from 18% in the third quarter of 2021. It has a huge £347.5million complaints provision. Amigo’s pre-tax profit was £1.6m compared to a whopping £81.3m loss in the third quarter. Positive profitability bodes well, as the company is ruthlessly cutting costs.



In terms of valuation, the stock has a market cap of just £25m, making it a true small-cap stock. However, the £110m in free cash means it is in a strong liquidity position. If we exclude the £97m for the new programme, that leaves £13m, meaning the company is currently trading at around double its future cash position. However, keep in mind that future dilution is not taken into account, which could skew the numbers even more.

The company trades at a price-to-sales ratio of 0.21, well below the historical level of 6.


The GF Value Line indicates that the stock is slightly undervalued compared to historical multiples, past financial results and future earnings projections.


Final Thoughts

Amigo is a battered and bloody fintech that recently got a glimmer of hope after the positive verdict. The brand and internal office team seem to have a fun and friendly style of borrow to your amigo, but the current situation is still shaky.

The company’s new program is awaiting regulatory approval, after which it should be ready to recover. Future shareholder dilution adds another element of risk to the investment and complicates valuation. So I believe the stock is likely to rally, but investing today would definitely be a speculative bet and this would be one of those trades where I would assume that every investment has the potential to go to zero. Therefore, an assessment of the risk-reward ratio should be made.


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