Provident's shares hit by fears over cuts
Jul 28 2010 by Iain Laing, The Journal
SUB-PRIME lender Provident Financial saw shares come under pressure yesterday after warning the Government’s spending cuts could impact its market.
The firm said the potential for soaring job losses from the UK austerity drive posed a risk to consumer appetite for home credit, with a weak employment market already tempering demand. Provident’s shares fell 6% as interim figures also missed some analyst forecasts.
The group reported pre-tax profits of £54m for the first half of 2010 – up 2% on a year earlier, but below the forecasts of two leading analysts.
Bradford-based Provident, which also owns Vanquis Bank, said it was encouraged by a 5.4% hike in home credit customer numbers, but confirmed trading conditions remained difficult and could get worse as public sector costs are slashed.
It said: “Demand for home credit continues to reflect cautious behaviour from some customers in the context of an employment market, which is unlikely to change in the near future.
“The group is also mindful of the potential for unemployment to increase as a result of the government’s fiscal austerity programme.”
The firm is cutting costs to help boost profits, revealing earlier this year that more than 180 jobs had been axed as part of cost savings.
Provident cut 95 jobs after abandoning plans for a separate direct repayment loans business, called Real Personal Finance, following a pilot last year. Another 90 jobs were also cut from its 900-strong head office workforce in Bradford to save costs.
Robin Savage, analyst at Collins Stewart, said the firm was “vulnerable to austerity measures“ and downgraded its rating on the stock to “sell“.
He added that Provident may reduce home lending further in the second half as it continues to tighten lending criteria, which could mean annual results also fall short of market predictions.
Provident has tightened its lending criteria and collections policy, recently hiring another 120 field-based management roles to boost collections capacity at the start of 2009 and expanding its contact centre at Vanquis.
However, impairments are still on the rise at the group, with provisions for bad debts up 12.8% within the home credit arm and up 17.3% at Vanquis.
Despite this, Provident said its Vanquis Bank arm had a strong first half, with an 82% hike in pre-tax profits to £9.1 million in the half-year.
It said demand was high for sub-prime credit cards, seeing more than 600 applications during the first six months, although its acceptance rate remains at just 19%.
