Amigo Loans Share Price Fell 7.56% Before Recouping the Losses Later. What’s Next?

Trade Amigo Loans Shares Your capital is at risk
Simon Mugo
Updated: 18 Feb 2022

Key points:

  • Amigo Loans shares fell 7.56% at the open, but later recouped their losses.
  • Buyers stepped in to buy the shares after the decline despite court case.
  • Investors are waiting for the March court ruling on its new business scheme.

The Amigo Holdings PLC (LON: AMGO) share price initially fell 7.56% at the open despite the guarantor lender not making any announcements but later recouped all its initial losses.

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Today’s decline seems like a minor retracement since buyers quickly stepped in and pushed Amigo’s share price higher.

However, many investors are waiting for March when the High Court shall hear Amigo’s new business plan to compensate aggrieved customers with up to £97 million, representing a significant improvement to its earlier proposals.

Also, Read Best Financial Stocks to Buy Right Now.

The guarantor lender is at risk of going out of business if the court does not approve its new scheme of arrangement.

The company’s shares crashed after revealing the details of its new business scheme that would see it issue 19 new shares for each current outstanding share, significantly diluting existing shareholders.

The move to raise more capital by diluting existing shareholders is likely to earn Amigo the court’s approval given that last time, the High court pointed out that the affected customers were getting a bad deal. In contrast, its shareholders were barely being affected.

Meanwhile, we have to wait until 8 March 2022 for the convening of the case with the final court sanction hearing scheduled for 24 March 2022 before we can know whether this will be the end for the pioneer British guarantor lender.

As I have mentioned in the past, the demand for Amigo’s guarantor loans is higher than before the pandemic, as many people lost their jobs and defaulted on their loans. Hence, they might be unable to get loans from traditional banks.

Luckily for such people, Amigo’s guarantor loans are available to almost everyone so long as they have a guarantor who is a homeowner who can vouch for them.

However, new competitors have emerged after Amigo stopped lending following the accusations of charging exorbitant interest rates to clients who could barely afford the loans in the first place.

Still, Amigo could reclaim some of its previous market share if the High Court approves its new business scheme and the company returns to lending shortly after the court ruling. Meanwhile, I wouldn’t buy Amigo shares until we get a clear direction from the courts since the lender is likely to go under if the new business scheme is not approved.

Amigo shares had fallen 7.56%% to trade at 3.30p, falling from Thursday’s closing price of 3.57p, but had recouped their losses at writing.

*This is not investment advice. Always do your due diligence before making investment decisions.

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