Provident Financial shares up 18% on resilient results

Shares of Bradford-based subprime lender Provident Financial rose about 18% on Wednesday as analysts said its results for the six months ended June 30, 2020, were not as bad as they had feared.

The Bradford firm posted an adjusted pretax loss of £32.6 million compared to a profit of £80.4 million pounds a year earlier.

Provident Financial said its performance was better than expected and therefore it has decided to repay all furlough support to the UK government.

Nonetheless, Provident Financial’s impairment coverage ratio for its consumer credit division (CCD) soared from 13.5% to 71.6%.

“The coverage ratio in CCD increased by 13.5% to 71.6% reflecting the deterioration in the customer base and those who have defaulted, and are therefore heavily provided, based on the 12-week impairment assessment period,” said the company.

However, analysts at Peel Hunt wrote: “Overall, although the business reported a loss, this was better than management’s internal plans and trading has continued to improve in recent months …

“Provident continues to have a strong capital position, and in our view this places the group in a good position to be able to withstand the current uncertain and difficult market conditions.”

Goodbody analysts wrote: “It could have been much worse …

“While impairments are very high, some of this will be seen as judicious prudence on the part of management – and should reduce the need for substantive charges in the coming quarters.”

Provident Financial CEO Malcolm Le May said: “The first six months of this year have been the most difficult and testing in my career.

“However, I am very pleased with how well the group has responded to the challenges brought about by Covid-19, and how effectively we have operated.

“We are reporting an adjusted loss before tax for the period of £32.6m, this result is better than our initial view of Covid-19’s potential impact on our businesses.

“Pleasingly, within this number Vanquis Bank and Moneybarn were both profitable. 

“Looking forward, our strong financial position will mean that we can keep helping, and responsibly lending to, our customers, many of whom are key workers, as we, and they, face the challenge of furlough support ending and unemployment rising in the coming months.

“Provident Financial has performed robustly in the first half of the year because we focused on our customers, colleagues and strengthening our balance sheet for the challenges the pandemic would bring.

“In fact financial and operational performance were better than expected, and therefore we have decided to repay all furlough support to the government.

“We believe this is the right thing to do, and on behalf of customers have also advocated the government should support wider funding for the sector.

“Our market will grow due to the pandemic, but at present it appears the supply of credit into the market is decreasing, which cannot be a good outcome for customers, nor a public policy one for the UK.”

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.