Funding Circle Holdings PLC (LON: FCH)– Received Accreditation for CBILS and Appointed a New Chief Financial Officer

Funding Circle Holdings PLC is a FTSE All-Share listed Online Lending Platform Company which connects medium and small-scale businesses (in the UK, US, Germany, and Netherlands) to government-backed entities, retail investors, banks, and asset management Companies.

Recent News
12^th June 2020: Oliver White has been appointed as Chief Financial Officer and Executive Director, which will come in effect from 15^th June 2020.

COVID-19 Update – Resilient Financials Amid the Uncertainties
As on 17^th April 2020, the Company provided an update over accreditation to join Coronavirus Business Interruption Loans Scheme (CBILS) and update on COVID-19 response. The major highlights were – Company accredited to disburse loan with an 80 per cent government guarantee to small businesses in the UK; it reported GBP 319.0 million in net assets, including GBP 164.5 million in the cash balance, as at 31^st December 2019; given the uncertainties, the Company withdrawn its financial guidance for 2020.

Share Price Performance
 
Daily Chart as on 16^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Funding Circle Holdings PLC’s shares closed trading at GBX 78.90 on 16^th June 2020, which was up 1.28% against the last day closing price. Stock's 52 weeks High is GBX 260.00 and Low is GBX 21.95.

From the technical standpoint, its shares were trading well below its short-term support level of 200-day simple moving average prices, which reflects a downward trend in the stock and carrying the potential to move down further

Growth Catalysts and Risk Assessments
The trading during the second half of March and April was wedged by disruption caused by COVID-19. However, the accreditation to Paycheck Protection Program (PPP) and Coronavirus Business Interruption Loans Scheme (CBILS), will provide some resilience to business with loan demand. Due to economic turbulence, Company’s performance is subject to various kinds of risks, such as Liquidity risk, market risk, foreign exchange risk and credit risk.

Conclusion
During the financial year 2019, the basic loss per share widened from 18.2 pence in FY18 to 24.4 pence in FY19. The free cash outflow stood at GBP 49.4 million in FY19 as compared to GBP 40.9 million in FY18. However, with rising demand for a loan in FY20, the Company is targeting to breakeven its adjusted EBITDA in the second half of FY20 with operational leverage to be achieved as business scales. However, considering the emerging nature of the pandemic and unprecedented uncertainties, the Company has withdrawn its guidance for FY20. Meanwhile, the Company implemented several actions to protect investor returns and managing the operations virtually to minimize the financial impact.

Based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 78.90 (as on 16th June 2020), while we look for any upcoming catalysts in the near term.

 
Arrow Global Group PLC - Operationally Resilient with Decent Balance Sheet and Liquidity Profile

Arrow Global Group PLC (LON: ARW) is a FTSE All-Share listed Asset and Investment Management Company. It focuses on unsecured defaulted loan portfolios from various financial institutions.

On 25th August 2020, the Company will release its half-year 2020 results.
 
Trading Update for Q1 FY20 Results (forthe three months ended 31 March 2020)
 

(Source: Company Website)
 
As on 14^th May 2020, the Company reported its first quarter results for FY20 and the major highlights were - the Group reported 11.0 per cent decline in Total Income to GBP 77.1 million as compared with the GBP 86.6 million in Q1 FY19. The Operating profit decreased by 20.5 per cent to GBP 22.5 million in Q1 FY20, and profit before tax was significantly down by 43.0 per cent to GBP 9.0 million in Q1 FY20. Asset management and servicing division showed some resilience as improved by 2.6 per cent to GBP 23.6 million in Q1 FY20. The Group has raised a further EUR 356.0 million of fund management capital. On 31st March 2020, the total capital commitments were EUR 1.2 billion, with EUR 896.0 million from third-party investors.
 
Share Price Performance
 
 
1-Year Chart as at June-16-2020, after the market close (Source: Refinitiv, Thomson Reuters)
 
On 16th June 2020, Arrow Global Group PLC’s shares closed trading at GBX 95.60 and were up by 0.63 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 306.80/GBX 60.00.
 
From the technical standpoint,its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock.
 
Valuation Methodology

 
Valuation Metrics

 (Source: LSE)

As on 29^th May 2020, Price/Earnings and EV/EBITDA multiples of the Arrow Group PLC were 3.9x and 1.4x, respectively, which were lower as compared with the Financial Services industry. Hence, it is indicating that the Company is trading at a lower multiple against its peers.
 
Growth Catalysts and Risk Assessments
 
A recessionary economic conditions and credit dislocation can yield investment and servicing opportunities. Further, the Group has a strong balance sheet and liquidity, with good financial headroom, the additional capital commitment of EUR 356 million, and no bond refinancing due until 2024. The Company witnessed robust cash collection. However, the Company has withdrawn its guidance for FY20 given the level of economic uncertainties.
 
Conclusion
 
Arrow Global has been adopting a cautious approach of investment during the uncertainties. However, the Group is well-positioned to capture future investment opportunities within its Investment Business and Fund Management Business. The Company has been maintaining a strong liquidity position for financial flexibility. ARW's business model is likely to be benefitted of economic dislocation as they see attractive investment and asset servicing opportunities across divisions in both the primary and secondary markets. Current financial headroom has increased to more than GBP 150 million from Q1 due to management actions. Moreover, the Group is highly optimistic about the asset servicing environment and an increasingly attractive investment.
 
Based on the decent prospects, which are supported by valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 95.60 (as on 16th June 2020) with lower double-digit upside potential based 0.90x NTM Price/Book (approx.) on FY20E book value per share (approx.).
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 17^th June 2020).

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