Provident Financial shares soar as it says recovery is on track and confirms loss

 
Rebecca Smith
The doorstep lender has been weathering a difficult period
The doorstep lender has been weathering a difficult period (Source: Getty)

Provident Financial today reaffirmed guidance for a pre-exceptional loss of up to £120m for the year, saying it won't be paying a dividend after weathering a difficult period during which the firm issued two profit warnings.

Today, the doorstep lender tried to buoy investors, saying progress to date is in line with the recovery plan, while an independent agency has been appointed to kick off the search for a new chief executive.

Shares rose 17 per cent in morning trading on the news, up to 923.50p.

Read more: Provident shares hit as Barclays weighs in with gloomy predictions

The figures

Provident Financial said it’s expecting a pre-exceptional loss for its consumer credit division of £80m-£120m for 2017, and won’t be paying a dividend this year. The loss remains in line with the guidance provided in August.

The changes made in recent weeks to stabilise the operation of the business have, Provident said, prevented any further slip in performance. Collections performance in September was 65 per cent, which was an improvement on the 57 per cent reported the month before, though the year before it had been 90 per cent.

Sales were still approximately £6m per week lower than the prior year, though that was an improvement on the £9m lower reported in August.

A new operating model brought on board in July had caused “a significant amount of unforeseen disruption”, resulting in the “significant deterioration” in trading performance reported in August.

Why it’s interesting

The doorstep lender’s boss Peter Crook quit back in August after the second profit warning in two months for the firm, sending shares plummeting. Provident Financial then dipped out of the FTSE 100 at the end of the month.

The FTSE 250 firm said it had been struggling to collect debts and last month, it was announced that Crook had agreed to forgo a year’s worth of salary, benefits and bonuses.

Meanwhile, the leadership in its home credit business has been shaken up, with Chris Gillespie returning to head it up.

Provident said performance being in line with the recovery plan and guidance provided in August rests on a “continuous improvement in customer service, collections and sales performance” as the business trades through the seasonal peak.

What analysts thought

Laith Khalaf, senior analyst at Hargreaves Lansdown, noted the stock was trading at "around double the lowest price it hit on that fateful day in August which precipitated its ejection from the FTSE 100".

"Things aren't getting any worse at Provident, and the company is pulling a U-turn on some of the problematic plan to streamline the home credit business," he said.

However, he also struck a note of warning, adding there were still reasons to be cautious.

"Companies in recovery can go one of two ways, and the rewards, or losses, are usually high. Provident still doesn’t have a CEO, and the financial watchdog is investigating sales of its repayment option plan to Vanquis Bank customers, a product which looks a lot like PPI," Khalaf said.

What the company said

Executive chairman Majit Wolstenholme, said:

Since the last update, we have moved quickly to appoint new leadership in home credit who have a deep understanding of the business and recognise the importance of the relationship between our front-line staff and our customers.

A recovery plan has been developed and a number of actions have already been implemented to restructure the field organisation in order to provide the foundation for delivering the necessary improvement in customer service and financial performance.

Vanquis Bank continues to work with the FCA in relation to the investigation into ROP.

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

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