Well-known, if beleaguered fund manager Neil Woodford has upped his stake in sub-prime lender Provident Financial (PFG). This has given the latter a vote of confidence that both parties have been lacking in recent months. Mr Woodford’s company bought in following a positive trading statement in which Provident outlined its plans for recovery in its home credit business. The announcement sent the shares up 17 per cent on the day, although they have since retreated.
The sub-prime lender has been suffering in recent months as it has struggled to get a handle on challenges within its home credit business. The division has undergone a comprehensive restructuring, first overhauling IT systems and reducing headcount, then replacing the self-employed agents it previously employed in the division with more than 2,500 full-time 'customer experience managers'. Difficulties implementing the changes led the group to take a £40m impairment at the half-year ended June 2017, while pre-tax profits in the home credit division fell from £37.2m to just £6.3m .
More recently, management revealed that the Financial Conduct Authority was investigating Vanquis Bank – a subsidiary in the credit card business – over concerns about its repayment option plan (ROP) product. ROPs allow customers to pause loan repayments without adversely affecting their credit history. As a result of the investigation, the departure of the chief executive and the deterioration in home credit trading – which is guided to make an £80m-£120m pre-exceptional loss in 2017 – management announced it would be taking steps to protect the financial health of the company, making a full-year dividend “unlikely”.
Since then, things seem to have taken a turn for the better. The update earlier this month indicated progress was being made in home credit “in line with the recovery plan”, while the other divisions were performing well. Home credit will recruit part-time customer experience managers to boost collections and assistant area managers will be brought in to improve compliance and administration. Following the announcement, analysts at Numis upgraded their EPS forecasts for 2017 by 15 per cent, while Peel Hunt moved to hold, saying that “a number of uncertainties” remain.
