Losses expected to widen at Funding Circle

Analysts fear the quality of loans on the platform will be affected by Brexit and a global slowdown.

Funding Circle is expected to see sales jump but losses widen, amid concerns over the quality of the business peer-to-peer lender’s loans when it posts full-year results on Thursday.

The platform is forecast to reveal 2018 sales up 48 per cent to £139.4m, as it expands the amount of loans it originates, according to analysts at Numis.

However, it is also expected to report pre-tax losses of £59.5m, widening from £36.3m 12 months previously, as the business pushes to achieve the scale it needs to make profits.

The business said in a January trading update it originated £2.3bn loans in the year to the end of December, a 40 per cent rise on the year before. It added its loans under management jumped 55 per cent in the period to £3.1bn.

The platform brings investors and small firms seeking a loan together, earning fees from each loan it originates.

Chief executive Samir Desai (pictured, left) said: “Funding Circle delivered a strong end to 2018 which resulted in exceeding our revenue and loans under management guidance for the year.”  

But some brokers think the pace the platform has set will be hard to match in 2019, given a slowing global economy, marked by weaker European growth, trade wars between the US and China and Brexit in the UK.

Earlier this month these factors led the Bank of England to slash UK growth forecasts to 1.2 per cent this year, the slowest pace since 2009. The Bank had predicted growth of 1.7 per cent this year as recently as November.

Brokers at Barclays expect this to have an effect on Funding Circle’s business. They said: “Given the global slowdown and Brexit, the default risk on its portfolio will increase.”

They added: “It will not have direct exposure to this but we suspect that investors will become more nervous.”

The business floated in London in October at 440p per share, valuing the platform at £1.5bn. However, it has consistently traded below that price, a number of investors say its initial public offering was overpriced, with it now potentially heading into a difficult loan market. The company's shares closed at 350.6p on Tuesday 5 March.    

Funding Circle was founded in 2010 by Desai and his two friends, James Meekings and Andrew Mullinger, who all met at university.