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How the Provy is moving from doorstep to desktop

Provident Financial has streamlined its home credit business, while increasing investment in online lending
February 24, 2016

Alternative lender P rovident Financial (PROV) continues in its online shift, reducing the size and future costs of its doorstep lending business and investing in Satsuma, its web platform for customers hunting short-term loans. Providing the profit momentum as always was sub-prime credit card business Vanquis Bank, which increased pre-tax profits by more than a fifth to £186m, as its customer acquisition programme delivered record new bookings of 433,000.

IC TIP: Buy at 3,267p

Management has tried to reposition the Provy's home credit business as a "smaller, better quality business". Its UK agents now use collection and lending apps, resulting in a 500 cut in headcount and £11.8m in associated redundancy costs. Overall customer numbers for the home credit business contracted by 11.5 per cent. Half of this was due to the sale of delinquent low value customer balances to third-party debt purchasers, while tighter credit standards also played a part.

Chief executive Peter Crook says the group has been focusing on improving the quality of loans Satsuma grants, which during the fourth quarter of the year resulted in a contraction in credit. Nevertheless, the business more than doubled its customer numbers and receivables to 49,000 and £12.1m respectively. Car finance business Moneybarn also performed well in its first full year of ownership.

Broker Cenkos expects adjusted EPS of 173.8p in 2016, up from 162.6p the previous year.

PROVIDENT FINANCIAL (PFG)

ORD PRICE:3,267pMARKET VALUE:£4.81bn
TOUCH:3,266-3,269p12-MONTH HIGH:3,654pLOW: 2,623p
DIVIDEND YIELD:3.7%PE RATIO:22
NET ASSET VALUE:481p*NET DEBT:204%

Year to 31 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20110.9116290.069.0
20120.98197110.077.2
20131.08182104.085.0
20141.08225126.598.0
20151.11274151.8120.1
% change+3+22+20+23

Ex-div: 19 May

Payment: 24 Jun

*includes intangible assets of £156m, or 90p a share