LONDON (ShareCast) - (Sharecast News) - Guarantor loans provider Amigo Holdings posted a drop in first-quarter adjusted profits on Thursday despite double-digit growth in revenues and customer numbers, as it warned that annual loan book growth will slow.
In the three months ended 30 June, Amigo customer numbers increased 17.3% to 210.3m and revenues improved 13.7% to £71.5m but a rise in impairment and heightened investment left the group with an adjusted profit after tax of £20.4m - a 6.4% year-on-year decline.

The FTSE 250 company attributed the increase in impairments to "operational challenges" within collections, the impact of higher originations, increased day one provisions and more cautious IFRS 9 assumptions around the economy.

Basic, adjusted earnings per share tumbled 21.8% to 4.3p.

Amigo's net loan book grew 14.1% to 728.4m, while net borrowings/adjusted tangible equity stayed within expectations at 1.8x.

The improved loan book was attributed to its "positive action" campaign of responding to an "evolving regulatory and economic environment" while recognising the continued strong demand for its product.

In response to "an evolving regulatory and economic environment", Amigo said it has taken steps to prioritise new lending over relending to existing customers, enhance and tighten its credit policy and invest in operations, compliance and complaints.

As a result, it now expects loan book growth for the year to be broadly flat, down from a previous target of high teens percentage growth. In addition, the cost to income ratio estimate was raised to low 20s from below 20% previously, while the impairment to revenue ratio was revised to low to mid 30s from mid-20s per cent.

Chief executive Hamish Paton said: "This positive action means that we are hitting the ground running ahead of what we recognise is a changing regulatory and economic landscape.

"By doing this, we are being proactive and pragmatic. We are focused on achieving the best customer outcomes - all with long-term returns as a key driver"

At 1050 BST, the shares were down 42% at 84.32p.

Russ Mould, investment director at AJ Bell, said: "Loans provider Amigo seems to be doing everything it can to improve the quality of its business and adapt to the ever-changing regulatory landscape. Sadly the results have yet to convince the market with its share price taking yet another beating on its first quarter numbers.

"The outlook contains quite a few shocks including a warning that impairments are likely to remain at a higher level, the ratio of cost to income is going to rise, and there could be a hit to repeat lending.

"Amigo argues that it provides a valuable product that helps improve people's lives yet the business is so far failing to reward shareholders. The latest update would suggest something is going very wrong given it is having problems within its collections business.

"The market was already worried about regulation becoming tighter for the guarantor loans market and today's update from Amigo makes matters even worse, suggesting it has some very dark days ahead."

Shore Capital analyst Gary Greenwood said: "We downgraded Amigo to sell on 17th June when the shares were at 276p following a sharp rise in the price combined with growing regulatory and UK economic fears. This has proven to be a great call with the stock down 47% since then and likely to fall further in light of today's announcement.

"Despite valuation multiples looking undemanding on provisionally revised estimates, we think there remains a risk of further disappointment and hence retain our sell stance."

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