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Sector Note -
Frenkel Topping Group plc (FEN:LON), 51.5 | STM Group PLC (STM:LON), 57.5
- Published:
23 Oct 2018 -
Author:
Cavendish Research -
Pages:
22
Embedded value in platforms: existing business vs future growth. The IPO of Funding Circle on the LSE Main List on 3 October 2018 was a seminal moment for the sector because it was the first time a very ‘full’ private equity valuation was replicated in the public markets. What’s more, it was the first UK peer-to-peer lender to float. The company grew its revenue at 54% in H1 2018 while achieving a negative EBITDA margin of 26%. At IPO, it achieved a valuation of 13.7x revenue while we are simultaneously seeing listed lenders trading at 10x post-tax profits. We felt as a consequence that it would be useful to take a look at the valuations that markets are imputing for existing loan books/recurring revenues versus the value of future growth in a similar way to how the insurance sector is priced as an embedded value of the existing book of business.