Attempts by doorstep lender Provident Financial (PFG) at fixing its home credit business have not come off as planned.
The company says its consumer credit business is expected to report a loss of £120m which was at the upper end of the guidance given in August 2017.
The company puts this down to a lower than expected rate of ‘reconnection’ through the fourth quarter with home credit customers whose relationship had been adversely impacted following ‘the poorly executed migration’ to Provident’s new operating model in July 2017.
You could argue that ‘poorly executed’ seems to be a euphemism for catastrophic.
The problem with winning back customers lost in Provident’s business is that it’s one built on trust. Once the trust is lost, it’s very hard to win it back or ‘reconnect’ as management put it.
The source of the company’s problems with its home credit business was changing the model from having self-employed debt collectors to fully employed ‘customer experience managers’.
That didn’t work, so why the company decided to keep with its revamped (and failing) model is very odd indeed.
However, it’s not all bad news. From August 2017 until the beginning of 2018, the company added 30,000 new customers to its home credit division.
Its collection rates have improved as well; in December they stood at 78%, up from 65% in September and 57% in August. That is still well below the 90% rate achieved under the old model.
SHARE PRICE FALLING AGAIN
Looking at the latest trading statement, it’s a challenge to find something to cheer in it. Perhaps that’s why the share price is down 8.4% to 842.4p.
Two of its other divisions are under investigation by the FCA, a regulator: Vanquis Bank and Moneybarn.
‘Vanquis appears to be running behind our expectations in terms of new bookings, which suggests our forward forecasts could be negatively impacted,’ says Liberum Capital. ‘Impairments still appear to be elevated at Moneybarn.
‘The balance sheet remains stretched, with headroom after accounting for 2018 maturities at £31m.
‘In the absence of resolution on the strength of the balance sheet, the FCA’s investigation on ROP (repayment option plan) and the search for a new CEO, our negative stance is unchanged,’ concludes Liberum which has a sell rating on the stock.
