I discussed this with reference to Amigo (AMGO), at length, a couple of weeks ago in my new video show. Now another warning from the company shows that it is past the stage of making windfall profits from screwing its customers and is now suffering the blowback on that which will, in due course, wipe out shareholders completely...
The Amigo business model is to charge usurious rates of interest (50%) to lend money to stupid folks who are such bad credit risks that they cannot get loans anywhere else. As a twist the borrowers have to find a mate who is equally stupid, but a better credit risk, to guarantee the loan. Guess what? The default rate is over 30%. This is so obviously exploitatitive that, when it listed, I said I could not invest on ethical grounds. But you do not have to be a Guardian-reading bleading heart caring sort of guy like me, not to invest. In the end it was inevitable that regulators would start to object to this busines model. Were the risks fully explained to the daft sods who took out such loans? I doubt it. A few weeks ago, Amigo warned that it had now identified £35 million of legitimate claims from customers that it had screwed, and that the FCA was crawling all over it. That announcement was the death knell of Amigo. Word is spreading and as every day goes by another customer will learn that folks are getting compensation and, whether they have a case or not, they will put in a claim. Folks with loans outstanding will take the rational decision to default and it is hard to see the FCA responding to a clear tsunami of claims by allowing this company to write any more new business. Amigo is not now in an orderly run off, it is in a disorderly collapse.
Now we are told: On 27 May 2020, Amigo announced that it would enter into a Voluntary Requirement ("VReq") with the FCA regarding complaints. The VReq was intended to clear a backlog of approximately 9,000 complaints that would have been aged eight weeks and over as at 26 June 2020, the date the VReq was due to be completed. Since our announcement on 8 June, Amigo has continued to see a substantial increase in the rate of complaints. The Company is currently in discussions with the FCA to reach agreement on a variation of the VReq. The variation is anticipated to agree to extend the date of completion beyond 26 June 2020 and a corresponding expansion of the backlog of complaints to be resolved. Amigo will continue to assess each complaint on a case by case basis to ensure fair outcomes for our customers. Amigo expects to publish its full year results for the year ended 31 March 2020 on or before 23 July 2020. The additional cost of complaints received subsequent to 31 March 2020 is expected to be material, as a result of the substantial increase in the rate of complaints received. Ends
This is like painting the Forth Bridge but worse. As soon as one complaint is resolved another comes in. In fact as awareness of this issue increases it won’t be one in one out but a lot more than one in one out. Expect to see Amigo’s default levels rocket and the amount having to be handed back in compensation also rocket. In the end that will destroy the balance sheet, devouring it in its entirety. So zero asset backing and a business model now totally broken, what is not to like? And as ever in business, you can make cracking profits screwing your customers but only for so long as eventually either they or a regulator twigs. It is not a sustainable business model. Amigo shares are off another 20% at 7.9p but that still values the firm at £38 million. That is £38 million too high. Still a sell, target price 0p.
Filed under: Amigo Holdings, Tom Winnifrith Shareshow, Intu, Julie Meyer, Cranswick, KEFI Minerals
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