Door step lender Provident Financial (PFG) sees its share price shed 16.2% down to £24.01 as the company issues a profit warning. Can the 135 year old FTSE 100 company recover from this?
Back in February Provident announced that it would axe 4500 of its self-employed debt collectors and create 2500 ‘customer experience managers’ instead.
The transition has not gone well, with chief executive Peter Crook saying on Tuesday 20 June he is ‘disappointed to report higher than expected operational disruption’ from the move.
That’s putting it mildly. On a year-on-year basis, sales have declined £37m in the first five months to May due to ‘reduced agent effectiveness’.
The company now says that profits for this year are going to be down by almost 50% to £60m for the year in its home collection credit business, the quaint phrase the firm uses instead of doorstep lending.
Is there light at the end of tunnel?
Provident’s home collection business may be faltering but other divisions such as its credit card business Vanquish or its car finance division Moneybarn may still deliver. James Hamilton, analyst at Numis, says he’s not reducing his forecasts for Vanquish as its received a lot of investment in the first half of the year.
He’s also rather bullish on Moneybarn, forecasting it to deliver 30% profit growth in the first half of year.
Despite Numis downgrading Provident to ‘reduce’ from ‘hold’, Hamilton says ‘Provident is a high-margin, high return on equity, short duration, low risk lender that has remained consistently profitable for over 135 years’. He’s more concerned with the ‘economic sensitivity’ of Vanquis and Moneybarn.
Portia Patel, analyst at Liberum, gives Provident a ‘sell’ rating and not based solely on its woeful home credit performance.
Patel says that all of Provident’s markets ‘are or will be subject to regulatory review’. She qualifies this by adding that this is not suggesting the company ‘will be negatively impacted at this stage’ but it is another potential concern.
However, Provident is a company that can perform in all market cycles and may do better in a downmarket when people may need its home credit services more.
The firm also pays out an average dividend yield of 4.4% so while it may be struggling to reorganise a major part of its business, this £4bn behemoth isn’t going anywhere soon.
