Troubled sub-prime lender Provident Financial (PFG) has surged by 15.8% to 913.50p as Friday’s trading statement reveals its pre-exceptional loss for the year is not higher than previously announced.

A loss of £80m to £120m for its consumer credit division is still not great news but the market reaction suggests many thought it could have been much worse.

“There is an old saying that ‘profit warnings come in threes’ so investors are reacting with understandable relief that Provident Financial’s third-quarter trading statement has halted its run of disappointing updates at two (at least for the moment),” says Russ Mould, AJ Bell Investment director.

The company also states that its other businesses are in good health. Vanquish Bank has ‘delivered good growth’ in the third quarter, short term loan business Satsuma ‘has continued to make further progress’ and car finance division Moneybarn ‘has continued to enjoy a good flow of new business’.

Even the company’s beleaguered home credit business is given a boost by the return of Chris Gillespie as managing director after a four year hiatus.

However, the company is sticking to its revamp of the home credit model that caused all the problems in the first place. As the company explains, the new model announced in February involved employing 2,500 full time customer experience managers to replace the 4,500 self-employed agents.

Provident says there was ‘unforeseen disruption’ with the new model. It doesn’t say explicitly that this included many of its employees leaving to join rivals like Morses Club (MCL:AIM) and Non-Standard Finance (NSF). The company’s recovery plan ‘retains the employed operating model in the UK’ and aims to ‘re-establish relationships with customers’.

While  Vanquish may be growing, the company did not mention the FCA’s investigation into its repayment option plan (ROP). This could have echoes of the payment protection insurance debacle which continues to cause high street lenders major headaches.

WHAT DO ANALYSTS THINK?

Shore Capital gives Provident a ‘buy’ rating despite saying that it will not know whether the home credit business has been turned around until the New Year. It also says that the company’s ROP product could lead to customer redress payments in excess of £240m.

But Shore has not heavily adjusted its forecasts following today’s statement and, believing the company will not have to return to the market for funds, reiterates its positive stance.

JP Morgan Cavenove retains its ‘neutral’ recommendation with a price target of £12.


Issue Date: 13 Oct 2017