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Provident Financial on the road to recovery

The home credit recovery plan is largely complete
October 25, 2018

Provident Financial (PFG) continued to make progress repairing its home credit business, and has successfully rolled out its new operating model. However, collections' performance remains around 10 per cent below historic levels, mainly because performance management of the customer experience managers (CEM) was restricted during the implementation of the recovery plan.

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The shortfall comes from those customers who were making payments during the troubled migration to the new operating model, while the CEMs collecting from these customers did not typically originate the loan. This weakened the customer relationship.

However, the collections performance of credit that originated after the fourth quarter of 2017 is in line with historic levels, reflecting an improvement in customer relationships.

Credit card subsidiary Vanquis Bank has performed well and, despite implementing tighter lending criteria, there were 103,000 new customer bookings in the third quarter to 18 October 2018, taking total customer numbers up to 1.8m, up 6.3 per cent from a year earlier. The refund programme to 1.2m customers using repayment option plans is expected to be substantially complete by early 2019.

Vanquis now has 850,000 registered users of its new mobile app launched last year, and a new customer database – Provident Knowledge Universe – is in the process of being rolled out. In response to a credit card market study carried out by the Financial Conduct Authority on persistent debt, Provident has increased its minimum payments and is increasing communication with its customers to help them avoid losing the benefits of owning a Vanquis credit card.

Moneybarn, which provides vehicle finance for people in the non-standard credit market, delivered 16 per cent year-on-year growth in the third quarter, with customer numbers rising to 59,000 despite tighter lending criteria. Because of this, risk-adjusted margins have shown a modest improvement.

Analysts at Numis have trimmed their underlying EPS forecasts for the 2018 full year from 43.4p to 42.7p, and from 61.6p to 60.5p for 2019. Profits are forecast to accelerate sharply thereafter, putting the shares on 6.6 times 2020 forecast earnings, with the dividend yield jumping to 10.7 per cent.