Provident investors wear second day of losses as Barclays weighs in with gloomy predictions

Oliver Gill
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Provident Financial operates a range of deposit and credit products (Source: Getty)

Investors in Provident Financial wore a second successive day of losses, as shares dipped after a leading City analyst slapped the doorstep lender with its first sell rating for over three years.

Shares fell over nine per cent before regaining ground to end the day 5.1 per cent down at 793p per share.

Barclays downgraded Provident, lowering its target price to 584p. The last time the Bradford-based lender received a sell recommendation was in September 2014 by RBC Capital.

On Tuesday, Britain's top information watchdog fined Provident after finding it had text-spammed almost 900,000 people and sent 620,000 spam emails. The fine hit the lender's stock market value, with shares falling over eight per cent.

Read more: Provident shares slump after being fined for mammoth spam texting campaign

Provident experienced one of the largest sell-offs in FTSE 100 history last month after unveiling a catalogue of problems. The firm was relegated from the blue-chip index but has subsequently regained ground as cornerstone investors such as Invesco and Woodford stand by the firm.

"The shares have recovered by 42 per cent from the trough, despite no new guidance," said Barclays analyst Toni Dang.

Provident announces its third-quarter earnings this Friday, which investors expect will include an update on staff discontentment, ailing loan collections and loss-making activities.

Investors will also be looking out for an update on a probe by the Financial Conduct Authority (FCA) into mis-selling of PPI-style products. RBC has warned redress and penalties from the alleged mis-selling could cost Provident up to £300m.

Dang said:

We are cautious on the shares given our lack of confidence for a turnaround of the home credit business and the unquantifiable size of potential FCA redress. We perceive further tail risks of Provident Financial not being able to meet its October 2019 debt obligation, breaching of debt covenants and the impact of accounting. These assumptions are not baked into our base case but we believe could have a meaningful impact on earnings.

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