Recent AIM addition LendInvest (LINV:AIM) is an asset management platform focused on property finance but the story is more exciting than you might think at first glance.

Its CEO Rod Lockhart tells Shares how its differentiated technology is disrupting the property finance sector.

Lockhart also outlines future avenues of growth for the group. These include attacking the specialist home owner mortgage market and licensing LendInvest’s software to banks and building societies.

LendInvest’s asset management platform comprises two elements. On one side investors use the platform to invest in property loans that LendInvest originates.

On the other side, LendInvest provides landlords and developers with buy to let mortgages, development loans and short term property finance. At the core of LendInvest’s offering is an end to end technology platform that makes it considerably easier than traditional options to invest into property loans as well as to borrow.

LendInvest floated on AIM in July with a £255.6 million market cap and is up 18% since listing. It has been profitable since 2015 and has grown its assets under management by a compound annual growth rate of 48.2% from £326 million at 31 March 2017 to £1.6 billion as at 31 March 2021.

PROPERTY FINANCE IS RIPE FOR DISRUPTION

The property finance sector is unique in that it has largely remained immune to disruption. Lockhart explains that within property finance ‘the majority of lenders continue to use antiquated technologies, systems and services’. LendInvest have digitised this process. Lockhart outlines a couple of specific examples.

For a borrower KYC (know your customer) and AML (anti-money laundering) regulations normally involve documents being certified by solicitors and distributed to other parties involved. LendInvest facial recognition software enables borrowers to verify their identity by uploading their passport details through a mobile phone link. This prevents the need for a paper audit trail.

LendInvest also uses open banking which circumvents the need to piece together a multitude of bank statements to verify income. This avoids downloading bank statements and sending them on to a broker, who then in turn forwards them to the lender. At this point in the process, the lender invariably asks for additional information which creates friction for the broker, borrower and lender, thereby slowing down the lending process.

Open banking can reduce the income verification time from 30 minutes to less than five minutes. Lockhart explains: ‘These are simple technologies that other digitally native fintech companies have been using within the financial services sector, but have only recently been incorporated within the property lending process.’

To date, LendInvest has invested approximately £50 million on developing its cloud based technology platform that automates the loan application process. This enables LendInvest to compete on the quality of its service, in a market dominated by legacy paper-based processes.

THE MARKET OPPORTUNITY

According to Bank of England estimates the UK property finance market is huge with £1.5 trillion of property finance loans outstanding. This equates to approximately £300 billion each year of annual originations (people applying for loans). Consequently there is huge capacity in the market for LendInvest to grow.

LendInvest currently provides bridging, development and buy to let mortgages equivalent to only 1.1% of the £1.5 trillion of total outstanding property loans. These three segments constitute annual originations of £42 billion a year, indicating the scope for the group to grow within these areas. The market is also highly profitable and benefits from secular growth due to the undersupply of housing and the high house prices relative to incomes.

Another growth opportunity for the group is the specialist home owner mortgage segment. LendInvest will target self-employed and contract workers with complex earning patterns or income streams that were interrupted by the pandemic. The same technology that underpins the group’s current buy to let offering can be utilized in the specialist homeowner market. According to recent research by Berenberg this segment represents a £105 billion market opportunity.

SOFTWARE LICENSING POTENTIAL

Looking further forward LendInvest would like to attack the mainstream home owner mortgage space. However the group does not intend to compete directly with the banks and building societies. Rather LendInvest will adopt a licensing model whereby incumbent mortgage providers pay a licensing fee to access the group’s software and service. Lockhart says: ‘This will provide the banks and building societies with the necessary tools to originate loans as effectively as LendInvest can.’

LendInvest is well positioned to further disrupt the property finance sector which is a large, profitable market. The group offers a superior customer experience by automating the loan application process.

LendInvest has a scalable technology platform and provides institutional investors with access to an attractive asset class that ordinarily would be out of reach. This has been made possible due to the considerable investment that has been made in developing its cloud-based technology platform.

There are considerable growth opportunities in adjacent markets, and longer term the possibility of licensing its technology to banks and building societies.

The group is trading on a 2022 prospective price to earnings ratio of 28.5 times falling to 15.5 times in 2023. According to house broker Berenberg, a sum of the parts valuation implies an equity
value of £375 million, equivalent to share price of 270p. This would imply 26% upside from current levels.

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