On the surface, shares in Provident Financial (PFG) look cheap. Analysts’ adjusted earnings forecasts range from 21p to 55p a share for 2020, which equates to a forward earnings multiple of between three and seven. Total shareholder equity was £741m at the end of December, 80 per cent above the group’s current market capitalisation. And, while trading was choppy even in a pre-coronavirus world, the sub-prime lender still posted a return on equity of 19.1 per cent in 2018 and 18.2 per cent in 2019.
IC TIP:
Sell
at
161p
Tip style
Sell
Risk rating
High
Timescale
Medium Term
Bull points
Shares trade far below book value
State support for borrowers
Bear points
High-cost lending too risky
Loan losses set to spike
Debt collection issues
Loan demand likely to vanish