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Shares in sub-prime lender Amigo plunge as loan growth slows

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(Reuters) – Shares in Amigo Holdings <AMGO.L> fell more than 30% to a record low on Thursday after the British subprime lender reported a rise in first-quarter impairments and costs and warned of slower annual growth in its loan book.

Amigo’s shares were trading at 97.5 pence at 0821 GMT. In June last year the company had priced its shares at 275 pence in its stock market debut.

Amigo, which issues loans typically guaranteed by a borrower’s family or friends, said a change in economic outlook and the potential for regulatory change had led it to take a more cautious approach to lending, with increased provisioning.

“We are therefore resetting expectations for the current financial year,” the company said in a statement, with broadly flat loan book growth marking a significant departure from the previous low-teens net loans growth guidance for the medium-term.

Bournemouth-based Amigo, offers loans of up to 10,000 pounds to borrowers with weak credit histories at an average annual percentage rate of 49.9%.

“In short, it is not a pretty update – with a material miss on impairments and operating costs as well as the new CEO, Hamish Paton, taking out the red pen to current year guidance,” Goodbody analysts said. Paton was appointed in July.

“The new CEO has taken the opportunity to slash FY19 guidance in what is his first results outing.”

FTSE 250 lender Amigo reported an impairment to revenue ratio of 30.5% for the quarter ended June 30 from 25.4% a year earlier.

Amigo said the reasons for the increase in impairments included operational challenges within collections, the impact of higher originations and more cautious IFRS 9 assumptions around the economy.

The cost to income ratio increased to 23.4%, hurt by a rise in investments and a provision for complaints.

RBC and JPMorgan analysts cut their target price on the stock on Thursday.

(Reporting by Noor Zainab Hussain in Bengaluru, editing by Sinead Cruise and Jane Merriman)

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