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Provident Financial on the ropes

The market is beginning to price in the possibility of insolvency at the Bradford-based consumer lender
April 8, 2020

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

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