Beleaguered sub-prime lender Provident Financial’s (PFG) annus horribilis may be behind it.
Shares reported on the ‘green shoots of recovery’ here and Tuesday’s half year results have sparked a positive response from the market. Its share price is up 15.2% to 710.6p, albeit still a long way off the £32.50 it was trading at before disaster struck its business.
On the face of it Provident’s results for the six months to 30 June show little to cheer. Adjusted pre-tax profit is down 24% at £74.9m.
What seems to be lifting investor sentiment is changes in teh boardroom, where former Suncorp CEO Patrick Snowball has joined as chairman. There's also a corporate bond issuance that seems to have buoyed investors.
REFORMATION
Gurjit Kambo, analyst at investment bank JP Morgan Cazenove says the business is ‘making progress’ on its objectives for 2018. One of the most crucial of these being the repair of its home credit business.
Provident says that the home credit operational recovery plan is expected to be substantially completed during the second half of the year. The collections performance was stable during the second quarter of 2018 and the company expects full Financial Conduct Authority (FCA) approval during the second half.
Its problems with the FCA over its repayment option plan in its Vanquish credit card division is being dealt with as the company’s refund programme is extended to 1.2m customers.
Another FCA issue regarding the company’s motor finance business Moneybarn is also being dealt with as provisions ‘remain appropriate’ according to Provident. The issue stemmed from the company allegedly giving credit to those who were not in a position to afford it.
STRONGER CAPITAL POSITION
Provident’s financial situation has been bolstered by the completion of a rights issue in April and also the launch of a new £250m corporate bond with a five year maturity and an annual coupon of 7%.
According to Gary Greenwood, analyst at broker Shore Capital, this new bond is well covered by high quality investors. The proceeds will be used to redeem the existing £250m corporate bond with an 8% coupon which was due to mature in October 2019.
Greenwood says ‘the successful issue of the new bond represents a further step in Provident Financial’s rehabilitation following last year’s well documented problems, with the group now firmly on the road to recovery’.
One sticking point for Provident is that as expected no dividend has been proposed which is perhaps an objective for a later stage. In 2016, the company paid 134.6p per share although it may take a long time to get to that level again.
