Funding Circle Holdings Plc (LON: FCH)

London-headquartered Funding Circle Holdings Plc is a software & computer services provider. The outstanding market capitalisation of the company stood at £312.4m, which ranks it among the small caps listed and traded on the London Stock Exchange. It is engaged in providing an online marketplace that allows businesses funding access from investors and also enable them to borrow business loan.

Trading Update - Q3 FY19 and Full-year guidance
As on October 21, 2019, the group reported its trading update for the third quarter ended September 30, 2019. During the period under consideration, the group's Loan Under Management surged by 31% to £3.7bn against the year-over period, with the greatest contribution came from the UK, followed by the United States, DE and NL, respectively.

Total originators during the period under revenue increased to £1.8bn against £1.6bn reported in the same period of the corresponding financial year.

In July 2019, the group completed £232m asset-backed securitization transaction and added 9 new institutional investors onto the platform in the UK and completed a $198 m securitisation and added 18 new institutional investors onto the platform in the United States.

Historical Performance

Source: Thomson Reuters
In the past three years, the group’s Net Commission & Fees Income/Expense - Business Revenue, has grown with a compounded growth of 64%. However, over the same period, the group's expenditure surged beyond their revenue, which has turned it loss-making at the operating level itself. The group’s major operating expenditures are selling, general and administrative expenditure, which accounted for approximately 80% of the total operating expenditure in the FY18.

Stock Performance
 
Daily Price Chart (as on January 06, 2020), after the market closed. (Source: Thomson Reuters).

Shares of FCH tumbled more than 71% on a Year-on-Year basis, declined approximately 5.5% in the past three months and gave up about 8.5% in a month-over period, respectively. Also, traded approximately 45% below its long-term support level of 200-day SMA, a bearish indicator.

At the time of writing (after the market closed), its share ended approximately 2.83% lower against the previous closing level at GBX 89.4. In the year-over period, its shares have touched a 52w high of GBX 410 and a 52w low of GBX 82.0 and at the January 06^th closing level, its shares largely tilted towards the 52w low price level.

Conclusion
On a full-year basis, the group expects that revenue would be 20% higher against the year-over period, which was substantially lower revenue growth against around 49% it has reported in the FY18.

The challenging economic and political situation in the UK is one of the reasons behind the lower revenue growth in the FY19, which is completely reflecting in its shares price as well.As its stock has tumbled substantially in the year-over period (-71%) and traded substantially below its long-term support level of 200-day SMAs, which is considered being a bearish trend in the stocks.

However, recent political changes in the UK, post-December 12, 2019 General Election could benefit the group in the near-term, as Brexit related uncertainties have narrowed to some extent after PM Johnson bagged absolute majority at the House of Commons. Although, Prime Minister's pledge to complete Brexit transition in less than a year time is raising concerns among many investors.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 89.4 (as on January 06, 2020), while we look for the growth catalyst in near-term.

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