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P2P platform Funding Circle prepares to float
Peer-to-peer lender Funding Circle intends to list on the London Stock Exchange. It is hoping to raise £300m as it targets a £1.7bn valuation, but how safe are these platforms as investments?
Neil Faulkner, managing director of peer-to-peer lender 4thWay, notes some fund managers have already got burned from investing in these type of companies. One fund manager says he stays away from these assets as they are hit quickly at the first hint of weakness in the economy.
A glance across the pond to previous IPOs in this space should sound a cautionary tone. Both LendingClub and On Deck are both now trading well below their IPO prices and there are already some warning signs with Funding Circle.
Free cash flow is negative £24.2m although this reflects the fact the company is ploughing lots of cash into marketing. Also given the company’s revenue for 2017 was almost £100m, the market cap suggests a multiple of 17-times trailing revenue which is high and assumes great growth.
As Faulkner, says rather ominously, ‘most peer-to-peer lending platforms themselves have not yet been tested in a downturn’.