The UK has one of the most active and vibrant fintech sectors in the world, but there are not that many publicly-traded opportunities for the average investor. Most of the UK’s fintech champions are privately-, venture-capital or private-equity-backed companies with no plans to float any time soon.
LendInvest (LSE: LINV) is the rare exception. The firm was founded in 2008 to disrupt UK property lending, with an estimated addressable market of £150 billion at the time of its initial public offering (IPO) in 2021. LendInvest joined the market during the busiest year for public offerings in London since 2007. Globally, 2021 was a record year for new listings, especially for tech names, as investors piled into any company that looked like it could benefit from the disruption caused by the coronavirus pandemic. LendInvest went public in July 2021 at 186p per share for a market capitalisation of £255 million on London’s Aim market. The stock spiked to 226p in September – and then the world started to change.
In late 2021, central banks, including the Bank of England, began one of the most aggressive interest-rate hiking cycles in the history of central-bank rate-setting. As the Bank hiked rates from a record low of 0.1% in December 2021 to 3.5% by the end of 2022, and then to 5.25% by September 2023, a chill fell on the UK property market. LendInvest was hammered.
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When the company told the market in October 2022 that it would not grow as expected at its IPO, the stock plunged 30% in one day. By mid-October 2022, shares in the company were changing hands for just 61p. In August 2021, investment bank Berenberg published its inaugural analyst report on the company, projecting a profit before tax of £13 million for fiscal 2022, £24 million for fiscal 2023 and £37 million by 2024. Just over a year later, Berenberg had downgraded the numbers for 2023 and 2024 to £15 million and £18 million. As it turns out, the firm missed these projections by a mile. For fiscal 2024, it reported a loss after tax of £27.3 million.
Wrong place, wrong time for LendInvest
LendInvest really entered the public domain at the wrong time. The technology underpinning the company’s investment platform, which connects lenders with borrowers, has the potential to revolutionise the UK market. However, fintech has lurched from disaster to disaster over the past five years. Some of these disasters were utterly uncontrollable, such as the dramatic shift in the lending environment in 2022. Others, such as the firm’s early reliance on individual investors to help fund mortgage lending, and a £12.1 million accounting error in 2024, could have been avoided. The strategic missteps have shaken investor confidence in the firm and its management.
Now the business has finally stabilised. The most significant shift has been the move away from the bank-like lending model to an asset-management-led, capital-light business model. LendInvest’s edge has always been its technology, which streamlines the process of underwriting and servicing mortgages, especially when it comes to specialist property lending on commercial properties or developments. Where it struggled was finding the money to lend to borrowers at economic rates of interest. But over the past year, it has inked a number of deals with major lenders to provide funding to support the loans. In January, the group reported that these funds under management – capital committed to LendInvest – reached £5.14 billion. This included £1.5 billion from US investment giant JPMorgan, £300 million from BNP, Barclays and HSBC, and £300 million from Lloyds and other institutional investors. The fact that these lenders, some of the largest in the world, have backed LendInvest is telling.
Finding the money is only half of the battle for a specialist lender such as LendInvest. The hard part is deploying the capital effectively. Figures suggest it is doing just that. In a January trading update, LendInvest said it had lent just shy of £1.2 billion in the calendar year 2024, surpassing its previous record of £1.1 billion in 2022. This was achieved without any meaningful rise in headcount. In fact, the group cut more than a quarter of its staff in 2023 to help with costs as profit plunged. Increased lending volumes, coupled with the group’s increased funds under management, are both a testament to the scalability of its tech platform.
Primed for growth
LendInvest is putting the mistakes of the past behind it. It’s still at the mercy of markets to a certain extent, but it’s better positioned now than ever before. The company moved to run-rate profitability in September last year and has continued to deploy capital. A tough lending market may even work in the company’s favour as it’ll become even more important for lenders to assess the complex needs of borrowers.
Still, there’s no denying this is a high-risk play. LendInvest has a market capitalisation of just £37 million, and it needs to execute well over the coming years to avoid the mistakes of the past. However, based on Panmure Liberum projections, the stock is trading at a forward price-to-earnings ratio (p/e) of 8.4 based on fiscal 2027 earnings projections. That’s dirt cheap and suggests the market has little confidence in the company meeting growth expectations. But if LendInvest does execute well, there’s scope for huge returns for investors. It’s also worth noting that, at £33.6 million, the company would be worth less than the money it’s spent developing the tech that underpins its lending and mortgage servicing business. That could be a good opportunity for one of its deep-pocketed partners to pick up the tech on the cheap.
(Image credit: LSE)
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