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Funding Circle share crash brutally punishes IPO investors

Analysts have accused Funding Circle of failing to deliver o..

Analysts have accused Funding Circle of failing to deliver on the promises of its IPO after the lenders shares crashed today following a revenue warning.

Small business lending platform Funding Circles shares slumped today after it halved its revenue growth projection to 20 per cent following poor demand for its loans.

Read more: Funding Circle halves revenue growth target amid market uncertainties

“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,” said Samir Desai, Funding Circles founder and chief executive.

The peer-to-peer lenders shares dropped sharply in response to the news, and had fallen 29 per cent by mid-afternoon to 119p, down from 163p at yesterdays close.

Funding Circle has struggled to meet the ambitious growth targets set out in its IPO last year, when shares launched at £4.40. It reported an operating loss of £51.6m last year, up 40 per cent on the year before.

IPO investors brutally punished

Helal Miah, an investment research analyst at The Share Centre, says todays share price plunge is “brutally punishing” for investors who took part in the IPO, which saw shares launch at 440p.

He adds that Funding Circles move to tighten lending standards are necessary to ward off “an unsustainable rise in bad debts”.

An increasing number of the lenders loans are funded through other institutions, and Miah suggests that this is a “more sustainable direction for the business in the longer term”. However, he warns: “Short term headwinds remain due to requirement of huge capital investments in technology.”

“The business is unprofitable and it looks like being so for a little while longer,” he adds. “Funding Circle remains a share for the brave Investor and one we prefer to avoid.”

Funding Circle still a one-trick pony

Chris Beauchamp, IGs chief market analyst, says Funding Circles IPO was meant to mark the coming of age of the peer-to-peer lending sector, Beauchamp says, but these hopes were dashed by “a slowing economy and a need to be discerning with its loans”.

He adds that while the companys decision to focus on its core market is sensible, “it wRead More