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#TrustBuddy: #LendingClub valuation indicates large upside

Peer-to-peer lender Lending Club has picked up the type of investors it would want when the company is taken public, after raising USD 65 million from T. Rowe Price, Wellington Management, Blackrock and Sands Capital as part of its acquisition of Springstone Financial.

Lending Club, however, continues to put off answers about the timing or size of its seemingly inevitable initial public offering. In mid-April, Lending Club acquired Springstone Financial for $140 million in cash and stock, in the first-ever acquisition of a traditional financial services firm by a peer-to-peer lender. Founded in 2007, Springstone provides financing for K-12 private education, tutoring and medical services and facilitated over $340 million in loans in 2013.

Lending Club made its first loan in 2007 and through steady growth, has originated over $4 billion in personal loans among 250,000 customers through its platform.

To finance the acquisition, Lending Club raised USD 65 million in a new equity round among T. Rowe Price, Wellington Management, Blackrock and Sands Capital. The company also raised USD 50 million in debt financing for the cash portion of its Springstone transaction, and it paid the specialty lender a further USD 25 million in Lending Club stock.

Regarding the company’s newest funding round, CEO Renaud Laplanche said in a conference call that Lending Club has picked up a breed of investors it would hope to have when it becomes a public company. Laplanche called the fund managers “the type of reputable investors that we would want when we take the company public.” Laplanche would not comment on any plans that Lending Club may have to go public.

We believe that Lending Club has an opportunity to transform an important part of the banking system into a transparent online marketplace,” Henry Ellenbogen, a portfolio manager at T. Rowe Price said in a statement. “The Springstone acquisition is another step in that direction, and we are very excited at the prospect of being a long-term equity partner of Lending Club,” he added.

The most recent equity round values Lending Club at USD 3.76 billion, according to calculations by the Financial Times, a more than doubling of the company’s valuation since the company raised money from Google a year ago.

A disclosure indicated that Lending Club continues to record strong growth and has tipped into profitability. Lending Club earned USD 98 million in net revenue in 2013, and a net profit of USD 7.3 million. Springstone, that filing shows, generated USD 17.3 million in net revenue and a profit of USD 8.6 million last year. This means that the implied valuation of the recent equity round on a 12-months trailing basis is 33 x revenues (combined LendingClub plus Springstone).

The Sweden listed P2P-lender TrustBuddy has a current market cap of SEK 718m and reported 2013 revenues of SEK 81m, implying a 12-months trailing valuation of 8.9 x revenues. Last week TrustBuddy  reported a convincing set of Q1 2014 results with net revenues of SEK 28.1m increasing by 52% compared with the same period one year ago. The total number of loans increased by 88% y-o-y and the total amount lent was SEK 189.7 during the quarter, up 57% y-o-y.

Given the fact that both LendingClub and TrustBuddy are both growing strongly in a fast growing market, we see no reason why there should be such a huge discount in the valuation of TrustBuddy compared with LendingClub. Again, LendingClub’s most recent equity round values the company at 33x 12-months trailing revenues while TrustBuddy is currently trading at around 9x 12-months trailing revenues. Applying the LendingClub multiple on TrustBuddy would imply a share price of around SEK 8.15, compared with the current SEK 2.20.

There seems to be significant upside potential in the TrustBuddy share and we believe that the LendingClub IPO could be one potential trigger in the near- to mid-term.

Nordic Investor




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