LONDON (ShareCast) - (Sharecast News) - Analysts at RBC Capital Markets dropped their target price on British guarantor loans lender Amigo on Tuesday but still feel the firm is being "undervalued" by both markets and the regulator.
In RBC's view, guarantor lending has attracted "disproportionate regulatory attention" of late, and with Amigo's share price close to valuing the shares at its runoff value, the Canadian broker saw fit to reiterate its 'outperform' rating on the stock.

"We estimate that if Amigo's loan book stays constant, the ex-growth value is 230p - some 42% potential upside. If we assume the book is put into runoff, we estimate the value of the company at only 15% below the current share price," said RBC.

While the FCA had expressed concern about the "considerable increase" in the proportion of guarantor loan repayments, Amigo had reported a flat guarantor payment trend, leaving RBC struggling to square off the regulator's comments on the issue.

RBC also pointed out that complaints at Amigo fell 18% year-on-year throughout the first half compared to total consumer credit companies which saw complaints increase 40%.

"Amigo's 40-50% ROE business model, when compared to other non- standard finance lenders, is on lower interest rates, similar impairments, and scaled up by substantial operating leverage. We think it is inequitable to penalise a product where the superior ROE is driven by greater efficiency compared to companies with higher APRs."

RBC, which dropped its target price on Amigo's shares from 345p to 33p, also believes the shares were "pricing in a lot" given the strength of the business.

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