One UK stock that has seen a huge rebound recently is Amigo Holdings (LSE: AMGO). In the past month, its share price has more than doubled to 13.75 pence. However, over 12 months, it is still down about 45%.
Is this a stock I should consider for my own portfolio? Consider the case of investment.
Amigo Holdings: company description
Amigo Holdings is a UK company guarantor loan company which allows people to borrow between £ 2,000 and £ 10,000 with a guarantor (someone, usually a friend or family member, who agrees to support the borrower and step in to make repayments if they does not). Amigo’s goal is to give people the ability to borrow even if they don’t have a good credit rating.
Amigo inscribed on the London Stock Exchange in 2018 at an initial public offering (IPO) of 275p. Since then, the stock has underperformed sharply, falling to almost 5p in June of last year. At its current share price, its market capitalization is around £ 62million.
Recently, the company appointed a new management team with the aim of recovering. “We are a new management team committed to correcting the mistakes of the past in a way that is fair and equitable for all of our clients, including our 700,000 former borrowers and guarantors.“Amigo said in a statement.
It should be noted that a few directors have recently purchased a small amount of shares, which could indicate that they expect the Amigo share price to rise.
Amigo’s third quarter results
Looking at Amigo’s recent third quarter results for the period ending Dec.31, the company appears to be in trouble.
For the nine-month period, revenue was also £ 137.5million, up from £ 218million in the same period in 2019. This drop in revenue is due to a pause in all news loans and loss related to Covid-19. payment holidays (62,000 customers benefited from payment holidays as of December 31). Meanwhile, the company generated a pre-tax loss of £ 71.6million, compared to a pre-tax profit of £ 55.3million the year before.
What strikes me here are the “claims costs”. This amounted to £ 116.2million for the period, up from £ 26.6million the previous year.
Source: Amigo Holdings
Looking ahead, analysts expect annual revenue (end March 31) of £ 176million. For the following year, the consensus revenue forecast is £ 128million.
On the balance sheet, the company declared non-current liabilities of £ 344.1million as of December 31. Equity on the balance sheet was £ 153million resulting in a long-term debt ratio of 2.2.
Risk of claims
Getting back to the complaints issue, this seems like a big deal for Amigo. According to the Financial Ombudsman Service, complaints about loans from guarantors skyrocketed last year. Between October and December, there were over 10,000 related complaints, up from just over 300 in the same period a year earlier.
Most of the complaints – which ranged from borrowers saying their lender shouldn’t have given them a loan because they couldn’t afford it, to family members saying they didn’t. to be a surety – concerned Amigo. This question adds risk to the investment case.
My opinion on Amigo shares
Putting it all together, Amigo is not a stock that I want to buy right now. It sounds too risky. There are a lot of other stocks that I prefer to buy that are better suited to my portfolio.
Edward Sheldon has no position in the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a wide range of ideas makes we are better investors.