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Will we see Amigo Holdings share price boost as lending resumes?

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Amigo Holdings LON:AMGO has had a difficult two years, for but change seems to be on the horizon for the sub-prime lender. But can a new chief executive and a new brand help restore investor confidence?

On 23rd September, Amigo Holdings announced the promotion of chief financial officer Danny Malone to chief executive, with Gary Jennison stepping down immediately. Malone will be focusing on delivering on Amigo’s plans to return to market by February under the new brand of RewardRate.

The return to lending, if achieved as planned, will come after a more than two-year hiatus. Amigo suspended new lending in March 2020 and was hit with claims that it mis-sold loans.

So far it looks like the group is making progress. A high court judge accepted its proposed new business scheme back in May, though it is still subject to consent by the Financial Conduct Authority (FCA).

Amigo Holdings share price hit in August

The group is still under investigation by the FCA and will need to raise capital to support future lending.

Despite Amigo’s progress in its turnaround, the company’s shares were hit in August when it announced that its loan book had shrunk further, with revenue declining 68% to GBP10.4m in the three months to June. Of course, this was not unexpected, as it was due to the group’s pause in lending. Meanwhile the business saw a 48% decline in customers to 61,000.

The announcement also revealed that engagement with the financial regulator continued to be positive, with Amigo making significant progress in preparing to return to lend. It even said that it aims to return to lending far sooner than the scheme of arrangement’s deadline of 26th February 2023.

But aside from gaining the FCA’s approval and raising enough cash to support the business, Amigo also needs to clean up its reputation. The company almost collapsed at the start of the pandemic after a deluge of affordability claims. It was revealed that Amigo was selling unaffordable loans to customers, who were charged around 49.9% interest.

Executives at the business told the Guardian that they have learned their lesson. In an interview Jake Ranson, Amigo’s chief customer officer, said the new proposition – which will have new features like lower interest rates for making payments on time – will be very different.

Weapons-grade affordability

“We will be doing weapons-grade affordability tests, using things like open banking, and making sure that customers speak to a human…and that they understand the responsibility that comes with having the product,” he told the newspaper.

The company, whose share price collapsed 98% over the last five years to 4p, has its annual general meeting scheduled for 28th September. But there seem to be mixed feelings ahead of the gathering, with excitement over the continuation of lending but worries over the capital raise that will dilute existing shareholders’ holdings.

With the cost-of-living crisis, more people are expected to turn to loans from subprime lenders, buy now, pay later products or even loan sharks. There aren’t that many lenders in the market currently as many have struggled in recent years due to complaints.

If Amigo Holdings does resume lending, it may see increased demand, but it will need to be careful not to repeat the mistakes of the past. A new brand and a new CEO don’t always mean a new company.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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