Shares in sub-prime credit provider Provident Financial (PFC) leapt 14% to 224p after it posted first half results which were far from pretty but still better than management had forecast.
The group, whose 2.2 million customers typically struggle to obtain credit from mainstream lenders, recorded a pre-tax loss of £28 million in the six months to June compared with a profit of £43.1 million a year ago, even after it released £8.3 million of extraordinary prior-year provisions.
TOUGH FIRST HALF
Among its different divisions, the Vanquis Bank credit card arm managed to maintain profitability, albeit much reduced at £11.8 million against £90.5 million last year, while Moneybarn also scraped a profit of £2.4 million compared with £15.5 million a year ago.
In contrast, the consumer credit division and the Satsuma Loans business racked up losses of £37.6 million and £9.2 million respectively due to higher impairments - 12% against 7.1% a year ago - lower credit demand and fewer new customers.
However, the firm said its ‘financial and operational performance were better than expected’, and it could afford to repay all of the government's furlough support.
ACTIVITY PICKING UP
On a bright note, collections in home credit in July were running at more than 90% of pre-Covid levels with the majority of collections carried out remotely.
Other bright spots were a recovery in credit card spending from 60% of year-ago levels in April to 85% in July and August, and a strong rebound in demand for used cars with July being a record month with over 4,500 deals written despite the firm implementing tougher underwriting conditions.
Chief executive Malcolm Le May commented: ‘Provident Financial has performed robustly in the first half of the year because we focused on our customers, many of whom are key workers, colleagues and strengthening our balance sheet for the challenges the pandemic would bring’.
He also flagged the need for the government to support wider funding for the short-term credit sector. ‘Our market will grow due to the pandemic, but at present it appears the supply of credit into the market is decreasing, which cannot be a good outcome for customers, nor a public policy one for the UK’.
Jefferies’ analyst Julian Roberts was ‘cautiously optimistic’ on the firm’s prospects for the second half and maintained his 250p price target. ‘All areas of the business have seen improving conditions recently, and forbearance rates have fallen to low single digits. Impairments seem prudent, capital and liquidity levels are good and the competition is in trouble. We expect the group to do well after the pandemic’.
