In January, Amigo Holdings (LSE: AMGO) looked all but dead. The Amigo share price had crunched to a low of 5.26p, after a story of disaster.
The guarantor loans specialist was hit by predatory lending complaints back in 2019. And it had to settle a lot of claims and repay large numbers of creditors. The big crash followed, amid fears that the company was going under.
A Scheme of Arrangement (SoA) proposed by the company, which needed court approval, might be the only thing that could keep the Amigo share price from hitting zero. The idea was to limit the amount of compensation Amigo would pay, in order to keep it afloat.
The Financial Conduct Authority objected to the terms of the SoA, pointing out that most borrowers would see only around 5-10% of their compensation money. The alternative, according to the company’s management, was near-certain bankruptcy with claimants getting nothing.
Back from the brink
So there were hopes the court would accept the SoA filing, and that Amigo would pull back from the brink and continue towards long-term solvency. By May, ahead of the court ruling, the Amigo share price had stormed back to 30p. And as soon as the court approved the SoA, the shares would soar even higher, right?
Well, it didn’t happen. The court rejected Amigo’s SoA, and it was crunch time again. The shares didn’t fall quite as far as January’s low, but they did crash to 6.6p. It was surely only a matter of time before the sword of bankruptcy fell, lopping off any possible future for the company.
Except that didn’t happen either. With hindsight, it appears Amigo’s management had over-egged the pudding a little. And, what’s more, it even looks like there’s a bit of optimism creeping back. In the past month, the Amigo share price has risen by more than 35% to 11p.
Long-term plan?
As recently as 27 August, Amigo announced a management share options award under its Long Term Incentive Plan. Long-term. That’s impressive for a company that apparently thought it was going bust just a few months ago.
I can’t really criticise the bosses too much for trying to do the best for their shareholders back then. And they’re a new bunch, so the company has essentially moved on from any stigma associated with the authors of the 2019 crisis.
Full-year results showed a big fall in the number of customers and a drop in revenue. The firm wasn’t actively lending. And after big payments to settle complaints, plus a hefty further complaints provision, the bottom line showed a £284m pre-tax loss. Not great, eh?
Amigo share price revival?
But if we wind forward to the first quarter of the new year, things are looking different. Amigo actually reported a Q1 pre-tax profit, albeit a modest £15m. And since then, we’ve seen the latest Amigo share price rise.
If this apparent return to profit proves to be sustainable, and Amigo gets back to lending before too much longer, I reckon we might see positive share price progress in the next year or two.
It’s way too risky for me though, and I’ll keep away.
