At first glance, there aren’t many similarities between Aston Martin and Funding Circle. But the luxury carmaker and the disrupter peer-to-peer lender have more in common than you might think.
Both companies were among the City’s most eagerly awaited – some might say hyped – IPOs last year, and they made their stock market debuts on the same day last autumn. They both flopped and now the two are locked in a race to earn the dubious distinction of 2018’s most disastrous stock market float.
In the lead at the moment is Funding Circle, which on Tuesday saw its shares plummet by 30 per cent at one stage, to a new low of 115p (€1.29), after it warned in an unscheduled trading update that revenue growth this year will be half earlier forecasts.
It’s the latest blow for investors who backed the ill-fated IPO of the nine-year-old fintech lender at 440p a share last October. By the end of its first day of trading, the shares had crashed by 25 per cent, one of the worst debuts in the history of the London stock exchange.
Aston Martin fared better that day, falling by 5 per cent by the close of its first trading session. But it’s been downhill ever since, and last month the shares crashed through the 800p level, less than half their £19 float price.
Both companies have been described as “marmite stocks” – investors either buy into the growth story and love them, or they don’t. With hindsight, though, the warning signals were there from the first roadshows.
Aston Martin had initially imagined it would be accorded a rating as fancy as that of Ferrari, and a price-tag of £5 billion-plus was bandied about in the City, along with talk of a place in the FTSE 100 index.
But the price was later lowered to just over £4 billion and now the company, which reported annual losses of £68 million in February, is valued at less than £2.5 billion. A place in the blue chip index is way out of reach.
Heady rating
Similarly, loss-making Funding Circle – founded in 2010 by a trio of 30-something former Oxford University students – played up its buzzy fintech credentials in seeking an equally heady rating of five-times earnings.
The company pools funds from individuals and companies which it then lends out via its online platform to small businesses, enabling them to bypass banks. It bills itself as a “disruptive force” in business lending.
Chief executive Samir Desai initially described the early share price performance as “a weird blip” but it’s clear after Tuesday’s shock update that the growth story is not quite what was promised at the time of the £1.5 billion IPO, not least because the group’s market value is now just £400 million.
Citing the uncertainty of Brexit, Desai said demand from small businesses had fallen, and the company was also cutting back on riskier loans. As a result, the forecast growth of 40 per cent in revenues for 2019 has been halved to 20 per cent. The company has also put on hold plans to expand in Canada.
Desai said he recognised this was a change from the company’s previous guidance but said he was “taking the prudent course of action for the long-term growth and development of our business”.
Prudence is to be welcomed, of course, but the stock market is a very unforgiving place for companies that fail to deliver on forecasts, particularly those made in an IPO just months earlier.
Aston Martin has, however, managed to find some forgiveness for its dismal share price performance from its largest shareholder, the Italian private equity group Investindustrial Advisors. It’s proposing to up its stake from 31 per cent to 34 per cent in what’s been seen as a vote of confidence in the future of the 106-year-old luxury car marque. As Aston Martin shares have tumbled, the Italians have at least had the consolation that they cashed in at £19 a share in the IPO, having previously held a stake of around 40 per cent.
They clearly see some value in the shares at this level, and will also be looking to protect their existing investment. Their move to buy more had the right effect, boosting Aston Martin back above the £10 level when it was announced on Monday.
That leaves Funding Circle firmly in the lead in the most disastrous IPO stakes. It could do with some supportive shareholders of its own – and fast.
Fiona Walsh is business editor of theguardian.com
