Rising UK Housing Undersupply And Technology Investment Will Drive Strong Long Term Performance

Catalysts

About LendInvest

LendInvest is a technology driven alternative property finance platform that connects institutional capital with specialist U.K. property lending opportunities.

What are the underlying business or industry changes driving this perspective?

• A chronic undersupply of U.K. housing and persistent pressure on the private rented sector is supporting structurally healthy demand for specialist buy to let, development and bridging finance. This is positioning LendInvest to grow lending volumes and fee income faster than the wider mortgage market and support sustained revenue expansion.
• Falling base rates and cheaper funding, evidenced by tighter RMBS pricing and the new lower cost retail bond, are expected to reduce interest expense on principal lending and strengthen securitisation economics. This may lift net interest margin and earnings as more AUM is deployed through capital efficient structures.
• The shift from a principal lender model toward an asset and fund management led approach, backed by growing third party funds under management and SMAs from global banks and private credit investors, should increase high quality recurring fee income, improve return on equity and support more resilient net margins.
• Deep investment in proprietary automation, digital valuations and emerging AI driven underwriting and operations is creating a scalable, low touch platform. This allows lending to grow strongly while underlying admin expenses continue to fall, widening operating jaws and driving faster EBITDA and profit growth.
• Rising professionalisation of the buy to let and SME developer markets, combined with product innovation such as bridge to let and cross product transitions, is enhancing customer retention and share of wallet. This should support higher lifetime revenue per borrower and improve earnings visibility over time.

Assumptions

This narrative explores a more optimistic perspective on LendInvest compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming LendInvest's revenue will grow by 8.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 2.5% today to 18.4% in 3 years time.
• The bullish analysts expect earnings to reach £11.4 million (and earnings per share of £0.08) by about December 2028, up from £1.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.4x on those 2028 earnings, down from 44.3x today. This future PE is lower than the current PE for the GB Diversified Financial industry at 16.9x.
• The bullish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged period of higher for longer interest rates or a reversal of the currently expected base rate cuts could further pinch borrower affordability, constrain loan-to-value ratios and suppress transaction volumes in buy to let and development finance, which would slow AUM growth and weaken revenue and earnings growth.
• If the wave of capital flowing into specialist lending and private credit leads competitors to loosen underwriting standards while LendInvest maintains stricter discipline, the company may lose share in key niches or be forced to compromise on pricing, which would pressure lending volumes, net interest margin and ultimately earnings.
• Reliance on institutional funding lines, securitisation programs and retail bonds exposes LendInvest to capital markets volatility and geopolitical shocks, such that a sustained deterioration in risk appetite or a disruption in RMBS demand could increase funding costs or limit access to capital, compressing net margins and dampening earnings.
• The strategic shift from principal lending towards a capital light, asset management led model depends on continuing to attract and grow third party funds under management, so any slowdown in private credit inflows, competitive pressure on fee rates or underperformance in managed pools could stall fee income growth and reduce the stability of net operating income and profit.
• The competitive advantage claimed from proprietary technology, automation and emerging AI solutions may erode over time as larger banks and well funded fintechs accelerate digital and AI investment. This could reduce LendInvest’s pricing power and operational leverage, driving up relative cost to income and limiting future EBITDA and profit expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for LendInvest is £0.8, which represents up to two standard deviations above the consensus price target of £0.6. This valuation is based on what can be assumed as the expectations of LendInvest's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £0.8, and the most bearish reporting a price target of just £0.41.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be £62.2 million, earnings will come to £11.4 million, and it would be trading on a PE ratio of 12.4x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of £0.38, the analyst price target of £0.8 is 53.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.