Amigo shares plunge amid warning of slowdown in lending growth

Guarantor lender Amigo’s shares have plunged after it warned of a slowdown in lending growth ahead of an expected regulatory crackdown.

Shares in the company dived by more than 40% in early trading on Thursday after the FTSE 250 company also said impairment rates jumped on the back of “operational challenges”.

Amigo said it is taking a more cautious approach to lending to due to the “change in economic outlook and potential for regulatory change”.

The firm specialises in guarantor lending, which allows borrowers with weak credit histories to take out loans by having a creditworthy friend or family members sign as a guarantor.

The sector has grown rapidly in recent years but has come under significant pressure from the Financial Conduct Authority (FCA), which has previously raised concerns over the business model of guarantor lenders.

Amigo chief executive Hamish Paton, who joined the company last month, said it was being “proactive and pragmatic” by changing its strategy before an FCA intervention.

The lender posted revenues of £71.5 million for the quarter to June, up 13.7% on the same period last year.

Pre-tax profits fell 6.4% to £20.4 million, however, on the back of the rise in impairment costs and increased investment.

It said impairment costs had risen after it updated its models to reflect the “increased probability of a no-deal Brexit” and the impact of this on consumer sentiment.

Despite its stark warning, Amigo’s customer numbers jumped 17.3% against the same period in 2018.

Mr Paton said: “We are accelerating investment in our operations to enable continued delivery of best in class customer service and further enhancing credit and conduct policies.

“This positive action means that we are hitting the ground running ahead of what we recognise is a changing regulatory and economic landscape.

“By doing this, we are being proactive and pragmatic.

“We are focused on achieving the best customer outcomes – all with long-term returns as a key driver.”

Russ Mould, investment director at AJ Bell, said: “Loans provider Amigo seems to be doing everything it can to improve the quality of its business and adapt to the ever-changing regulatory landscape.

“Sadly, the results have yet to convince the market, with its share price taking yet another beating on its first quarter numbers.

“The market was already worried about regulation becoming tighter for the guarantor loans market and today’s update from Amigo makes matters even worse, suggesting it has some very dark days ahead.”

Shares slid 41.4% to 85.6p in early trading on Thursday.