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Momentum builds at Provvy

Economic recovery, and a mainstream banking sector that's still picky about the customers it will lend to, should keep growth rolling in at Provident Financial
January 22, 2015

With the UK's economic recovery now looking well entrenched, but with mainstream lenders still very choosy about the customers they're prepared to lend to, growth prospects at sub-prime lender Provident Financial (PFG) - known simply as 'the Provvy' to generations of borrowers - should remain robust. And even though the shares are no bargain compared with those of its direct peers, they're not so pricey for the financial services sector more generally and they do offer an attractive dividend yield: over 5 per cent, based on broker Numis Securities' forecast payout for 2016 of 127p. As the Provvy continues to generate strong growth, investors can expect the shares to keep motoring.

IC TIP: Buy at 2513p
Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points
  • Credit card business growing fast
  • Satsuma online unit making progress
  • Small competitors hit by new regulation
  • Decent dividend yield
Bear points
  • Consumer credit arm still recovering
  • Shares not cheap compared with direct peers

Indeed, a trading statement this month confirmed that solid growth profile. Significantly, it revealed rapid progress at the core credit card arm, Vanquis, which generated around 70 per cent of group profit at the half-year stage. A customer acquisition programme boosted Vanquis' customer numbers by almost 18 per cent in 2014 to 1.29m yet credit quality has remained stable. "Vanquis has exceeded all expectations and has prospered through the credit crisis," note analysts at Numis. "Margins [at Vanquis] are now exceptionally high." Vanquis is also expanding into Poland - where there's thought to be an addressable market of up to 10m people - and a pilot scheme was launched there in 2012. That's lossmaking for now but is adding 4,500 new customers a month - double the rate at the start of last year.

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