Budget Fintech Company, LendInvest, Experiences Price Drop
In the dynamic realm of global finance, the United Kingdom stands out with a robust and energetic fintech sector. However, limited opportunities for public investment exist, as many of the nation's fintech prowess is housed within privately-owned or venture-capital-backed organizations with no immediate intentions of going public.
One exception to this trend is LendInvest (LSE: LINV), a UK-based firm founded in 2008 to revolutionize property lending. The company saw an initial public offering (IPO) in 2021, capitalizing on an estimated market potential of £150 billion, and joining London's Aim market during the city's busiest year for offerings since 2007. As the world grappled with the impacts of the coronavirus pandemic, 2021 proved to be a record year for new listings, particularly for technology companies.
LendInvest made its public debut at 186p per share, giving it a market capitalization of £255 million. Shares rose to 226p in September, but then the global landscape began to change, marked by a series of aggressive interest-rate hikes by central banks, including the Bank of England.
As rates escalated from a record low of 0.1% in December 2021 to 3.5% by the end of 2022 and subsequently to 5.25% by September 2023, a chill fell upon the UK property market, and LendInvest was not immune. In October 2022, the company informed the market that growth would not meet expectations at its IPO, resulting in a 30% drop in stock value within a single day. By mid-October 2022, shares in the company were trading for just 61p – a far cry from their initial price.
Initially, investment bank Berenberg projected a profit before tax of £13 million for fiscal 2022, £24 million for fiscal 2023, and £37 million by 2024. However, by early 2024, Berenberg had downgraded these projections for 2023 and 2024 to £15 million and £18 million, respectively. The company fell significantly short of these expectations, reporting a loss after tax of £27.3 million for fiscal 2024.
LendInvest's difficult journey in the public domain is not solely attributed to uncontrollable factors like the shifting lending environment or the coronavirus pandemic. The firm's early reliance on individual investors and a £12.1 million accounting error in 2024 also undermined investor confidence in the company and its leadership.
Over the past year, LendInvest has made significant strides towards righting the ship. A pivotal shift has been moving away from a bank-like lending model to an asset-management-led, capital-light business strategy. The company's edge has always been its technology, which simplifies the process of underwriting and servicing mortgages, particularly for specialist property lending on commercial properties or developments.
One of LendInvest's key challenges has been finding funding to support its loans at competitive rates. However, the company has signed partnerships with major lenders, such as JPMorgan, Barclays, HSBC, and Lloyds, and other institutional investors, securing significant funds under management – reaching £5.14 billion in January 2024, inclusive of £1.5 billion from JPMorgan, £300 million from BNP, Barclays, and HSBC, and £300 million from Lloyds and other institutional investors.
Deploying capital effectively is another crucial aspect for a specialist lender like LendInvest. The company reported lending just under £1.2 billion in calendar year 2024, surpassing its previous record of £1.1 billion in 2022. This was achieved with minimal increased headcount, and the group even reduced its staff by more than a quarter in 2023 to manage costs as profit plummeted.
With a market capitalization of just £37 million, LendInvest is a high-risk investment play. To avoid past mistakes and fulfill growth expectations, the company needs to navigate the future market conditions successfully. However, based on projections from Panmure Liberum, the stock trades at a forward price-to-earnings ratio (p/e) of 8.4 for fiscal 2027 earnings estimates. This suggests that the market lacks confidence in the company achieving expected growth, but if LendInvest can deliver, there is potential for significant returns for investors. It's also worth noting that the company's technology – a precious asset that powers its lending and mortgage servicing business – might be a worthwhile investment opportunity for one of its partners, potentially at a discounted price.
- Despite primarily being housed in privately-owned or venture-capital-backed fintech organizations in the UK, LendInvest (LSE: LINV), a company specializing in property lending and technology, made a public debut in 2021 on London's Aim market, offering a rare example of business investing in the fintech sector.
- As LendInvest navigates the challenges brought by the dynamic property market and unrealized growth expectations, the company's technology, a key asset powering its lending and mortgage servicing, could be an attractive investment opportunity for one of its partners, potentially at a discounted price, given the high-risk nature of investing in the firm.
