Terry Tanaka says that although LendInvest has made some mistakes in the past, it is now well-positioned for expansion
The fintech industry in the UK is among the most dynamic and active in the world, but the average investor has limited access to publicly traded opportunities. With no immediate plans to go public, the majority of the UK's fintech champions are privately held, venture capital, or private equity-backed businesses.
The one exception is LendInvest (LSE: LINV). With a projected addressable market of 150 billion at the time of its initial public offering (IPO) in 2021, the company was established in 2008 with the goal of upending UK real estate lending. LendInvest entered the market during London's busiest year for IPOs since 2007. 2021 was a record year for new listings worldwide, particularly for tech names, as investors flocked to any business that appeared to stand to gain from the disruption brought on by the coronavirus pandemic. In July 2021, LendInvest went public on London's Aim market with a market valuation of 255 million, trading at 186p per share. After the stock hit 226p in September, things began to shift.
The Bank of England and other central banks initiated one of the most aggressive interest-rate hike cycles in central bank rate-setting history in late 2021. A chill was placed on the UK real estate market when the Bank raised interest rates from a record low of 0 percent in December 2021 to 3 percent by the end of 2022 and then to 5 percent by September 2023. LendInvest suffered a setback.
In October 2022, the stock fell 30% in a single day after the company informed the market that it would not grow as anticipated at its initial public offering. Shares in the company were trading for just 61p by the middle of October 2022. In its first analyst report on the business, released in August 2021, investment bank Berenberg predicted a profit before taxes of £13 million for the fiscal year 2022, £24 million for the fiscal year 2023, and £37 million for the fiscal year 2024. Berenberg had downgraded the 2023 and 2024 numbers to 15 million and 18 million, respectively, a little more than a year later. In actuality, the company fell far short of these expectations. In fiscal 2024, it reported a £27.3 million loss after taxes.
LendInvest is in the wrong place at the wrong time.
The timing of LendInvest's public debut was actually off. The company's investment platform, which links lenders and borrowers, is powered by technology that has the potential to completely transform the UK market. Fintech, however, has stumbled from catastrophe to catastrophe during the previous five years. There were some of these catastrophes that were completely out of control, like the significant change in the lending landscape in 2022. Others, like the company's early reliance on private investors to assist with mortgage lending and a 2024 accounting error of £12.1 million, could have been prevented. The company's management and investors' trust have been eroded by the strategic errors.
The business has now at last stabilized. Most notably, the bank-like lending model has been replaced by a capital-light, asset-management-led business model. When it comes to specialized property lending on commercial properties or developments, LendInvest's technological advantage has always been its ability to expedite the underwriting and servicing of mortgages. Finding the funds to lend to borrowers at reasonable interest rates was where it had trouble. However, it has signed several agreements with large lenders in the last 12 months to supply funds to back the loans. The group stated in January that the total amount of funds under management capital allocated to LendInvest was 5.14 billion. BNP, Barclays, and HSBC contributed 300 million, Lloyds and other institutional investors contributed 300 million, and US investment behemoth JPMorgan contributed 1.5 billion. It's telling that LendInvest has the support of these lenders, some of the biggest in the world.
LendInvest, a specialized lender, finds that finding the money is only half the fight. Effectively allocating the capital is the challenging part. Data indicates that it is doing just that. According to a January trading update, LendInvest broke its previous record of 1 point 1 billion in 2022 by lending just under 1 point 2 billion in 2024. This was accomplished without a significant increase in the number of employees. In fact, as profits fell in 2023, the company laid off over 25% of its employees to help with expenses. The group's increased funds under management and higher lending volumes are evidence of the tech platform's scalability.
Geared toward expansion.
The past mistakes of LendInvest are being put behind it. It is in a better position than ever before, but it is still somewhat dependent on the markets. After reaching run-rate profitability in September of last year, the business has kept investing. The company may benefit from a challenging lending market since it will be even more crucial for lenders to evaluate the intricate needs of borrowers.
That being said, this is unquestionably a high-risk play. With a market valuation of only 37 million, LendInvest must perform well in the upcoming years to avoid making the same mistakes it has in the past. Nonetheless, the stock is currently trading at a forward price-to-earnings ratio (p/e) of 8.4 based on fiscal 2027 earnings projections, according to Panmure Liberum projections. That's incredibly low and indicates that the market doesn't think the company will meet growth projections. However, there is potential for significant returns for investors if LendInvest performs well. It's also important to keep in mind that, at £33.6 million, the company's value would be lower than the money it would have spent on creating the technology that powers its lending and mortgage servicing operations. One of its well-funded partners might be able to acquire the technology at a reduced cost.
The price of LendInvest shares in pence.
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