I was exploring about this British Fintech (FCH)and caught my eye the few analyst saying it to be great investment in the long run. I was wondering if you could share your thoughts on it please if it’s worth a place in your portfolio?
Thank in advance
I used to do some loans through them. First to companies in general and then property development loans. With the companies in general their credit scoring didn’t turn out to be a particularly good indicator of whether or not the loan would get repaid. With the property development they underestimated how long developments would take and ended up refinancing many of them at the end of the term, or they went into late payments and bad debt. FC no longer do the property loans. So, I have pulled out of investing in their loans.
But what about their shares?
My view is that they should be making a profit by now. Their competitive advantage is supposed to be that they can be more efficient than the traditional lenders by using modern IT, which costs less to maintain, and not having branch overheads etc. But it seems that they cannot make a profit doing that and are hence trying to diversify the business. Nearly 1000 people on the payroll and no profit to show for it is pretty poor in my view.
On a wider theme, if they cannot make a profit it does make you wonder if there is something odd going on in the lending market generally. Are the interest rates on loans too low relative to the risk? And does this suggest there is a systemic risk of failure in some financial institutions imminent?
Anyway, it basically seems to me that the business model of Funding Circle doesn’t work as intended and that as result they have no competitive advantage and are thus to be avoided.
