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Provident Financial's profits up despite drop in credit card bookings

The sub-prime lender is expanding its product range to appeal to a wider customer base
July 26, 2016

There has been some concern that demand for Provident Financial 's (PFG) Vanquis Bank credit cards could be waning, after management flagged lower account bookings during the first five months of the year. Indeed, bookings of 184,000 across the first half were 32,000 lower than over the past comparable period. However, chief executive Peter Crook says the sub-prime lender's marketing spend is more heavily weighted towards the second half of the year and customer numbers have already begun to improve. Despite a fallback in new business, pre-tax profit for Vanquis were 13 per cent higher at £100m.

IC TIP: Buy at 2666p

Management has also been focused on continuing to transform its home credit business from doorstop to digital lending. Reduced start-up costs for digital lender Satsuma and guarantor-backed lender glo meant adjusted pre-tax profit increased 15 per cent to £44m. Satsuma currently provides weekly-repaid loans averaging £300, but the alternative lender intends to offer a monthly repayment product towards the end of the year. Appetite for motor finance remained strong, with Moneybarn now lending up to retail value. Adjusted pre-tax profit grew 45 per cent to £14m.

Analysts at Numis expect adjusted pre-tax profit of £324m and EPS of 170p for the year to December 2016 (from £295m and 163p in 2015).

PROVIDENT FINANCIAL (PFG)

ORD PRICE:2,666pMARKET VALUE:£3.94bn
TOUCH:2,665-2,667p12-MONTH HIGH:3,654pLOW: 2,125p
DIVIDEND YIELD:4.7%PE RATIO:15
NET ASSET VALUE: 498pNET DEBT:199%

Half-year to 30 JunTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201555511161.839.2
201657216586.043.2
% change+3+49+39+10

Ex-div: 27 Oct

Payment: 25 Nov