Funding Circle halves revenue growth guidance as demand falls

Key Points
  • Funding Circle halves its 2019 revenue growth projection to 20%.
  • It also says it's "pausing" a planned expansion into Canada.
  • The lender's shares fell as much as 25% in early Tuesday trade.
Funding Circle founders from left to right: Samir Desai, James Meekings and Andrew Mullinger.
Funding Circle

British peer-to-peer lending platform Funding Circle Holdings Plc on Tuesday halved its 2019 revenue growth projection to 20% and tightened its lending standards as reduced demand for loans hit its earnings.

"The uncertain economic environment has reduced demand from small businesses and led us to proactively tighten lending criteria. As a result, revenue growth will be impacted," Chief Executive Samir Desai said.

Funding Circle also said it is 'pausing' a planned expansion into Canada in order to focus on its existing markets, mainly Britain and the United States.

The lender's shares fell as much as 25% in early Tuesday trade and were down 10% at 0715 GMT. They are down 71% since the company floated in September amid wider concerns about the peer-to-peer industry model which works by matching borrowers with retail and institutional investors willing to lend for a return.

The negative update from one of Britain's most prominent peer-to-peer lenders will only intensify scrutiny from regulators and investors about the industry, following several high-profile problems in recent years.

The Financial Conduct Authority in June ruled retail investors will face a cap on how much they can put into peer-to-peer platforms amid concerns they risk big losses compared to insured bank savings accounts.

Funding Circle's shares took a hit in April when it said it would close its listed SME income fund, which analysts said had struggled with rising hedging and financing costs.

In an unscheduled update to the market ahead of its half-year results due on Aug. 8, Funding Circle on Tuesday said it has tightened lending criteria for higher-risk companies in a move that would hit loan volumes but protect investors.

"This is a disappointing update by Funding Circle, though not entirely surprising in our view as the ambitious growth targets set out at the IPO were always going to be difficult to hit while also maintaining a firm grip on asset quality," said analyst Colin Jackson at Dublin-based broker Goodbody.

Funding Circle said its current loan performance remains in line with previous projections, but that there was a 'marginal' increase in bad debt expectations for loans originated in Britain in 2018.

The company has yet to turn a profit but said on Tuesday it expected its annual loss for 2019 to be lower than in 2018.