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Provident Financial shares plunge after second profit warning Doorstep lender Provident's shares dive after profit warning
(about 1 hour later)
Provident Financial’s stock market value has more than halved after the doorstep lender issued its second profit warning in months, parted company with its chief executive and cancelled a dividend for shareholders. Provident Financial’s stock market value has more than halved after the doorstep lender issued its second profit warning in two months, parted company with its chief executive and cancelled a dividend for shareholders.
The company, which specialises in lending to people in financial difficulty and joined the FTSE 100 in Dec 2015, expects to make losses of up to £120m this year. The company, which joined the FTSE100 in December 2015, said it now expects its core home credit division to make losses of up to £120m this year, having predicted a profit of £60m just two months ago.
Its debt collection rate slumped to 57%, compared with 90% last year. The rapid deterioration in Provident’s performance comes after a failed attempt to overhaul its century-old business model by cutting staff numbers and ramping up its use of technology.
Its chief executive, Peter Crook, will step down with immediate effect in the light of the company’s poor performance, with Manjit Wolstenholme taking on the role of executive chairman. Provident will also cancel its interim dividend – and “in all likelihood” the full-year payout as well – in an attempt to conserve cash. Chief executive Peter Crook, who oversaw the change, has stepped down, with Manjit Wolstenholme taking on the role of executive chairman. The company will also cancel its interim dividend – and “in all likelihood” the full-year payout as well in an attempt to conserve cash.
The perfect storm of bad news for investors sent shares in the lender plunging more than 60%, from more than £17 to £682p. The perfect storm of bad news for investors sent shares in the sub-prime lender plunging more than 70% from more than £17 to 448p, wiping nearly £2bn off its stock market value.
Bradford-based Provident has struggled to implement a new way of collecting on the loans it makes, admitting that the changes have led to it “falling a long way short” of targets. Provident grew rapidly in the years following the financial crisis, stepping in to offer credit to people in financial difficulty who could not secure loans as banks became more wary of risky lending.
But earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door in working class neighbourhoods, offering loans and collecting debts.
In a move seen as part of the financial services industry’s attempt to embrace automation, Crook unveiled plans to do away with its 4,500-strong army of sales agents.
It planned to replace them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software.
But in a statement to the stock market, Provident said the software has “presented some early issues”, while the new operating model has “not allowed sufficient local autonomy”, leading to poor allocation of resources.
The firm’s debt collection rate has slumped to 57% from 90% last year as a result, while sales are £9m a week lower.
“The primary objectives set for the third quarter of 2017 were to embed the new operating model and to progressively restore customer service and collections performance to acceptable levels in preparation for the seasonal peak in lending during the fourth quarter,” it said.
“The rate of progress being made is too weak and the business is now falling a long way short of achieving these objectives.”
“I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business,” Wolstenholme said.“I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business,” Wolstenholme said.
Provident said it would begin a “thorough and rapid review” of its home credit division in an effort to turn it around.
The company also admitted that its Vanquis Bank division is being investigated by the Financial Conduct Authority over the sale of repayment option plans (ROP), a product that helps peoplel freeze their credit card debt.
The probe, which relates to sales made between April 2014 and April 2016, saw Provident agree to suspend the sale of ROPs, which were worth £70m a year in revenues.
Analysts at RBC Capital Markets called the string of negative announcements a “quadruple whammy” as Provident’s share price nosedived.
“We expect ongoing substantial losses in the share price, and would not be buyers at any price,” they said, adding that its shares “are not investible until greater clarity is received, which may not be until next year at the earliest.”