More on Provident Financial
Provident Financial: H1 2006 trading statement
Provident Financial, a provider of consumer credit, car finance and motor insurance reported that credit volumes in its UK home credit business rose 1% in the five months to May 2006 but warned that impairments were rising.
Impairments or bad debts were said to have risen due to a 7% growth in receivables and continued pressure on customers’ disposable incomes.
First half marketing and IT costs are about £5m ahead of last year but this was said to be in line with plans and was expected to generate savings in the longer term.
Vanquis Bank, the company’s credit card issuing subsidiary is said to be performing better but start up losses in H1 have risen to £15m – about the same as the whole of last year.
In the closed Yes Car credit business, the company has made reasonable progress with its recoveries with total collections of £70m, £3m ahead of plan. At the 2005 year end receivables stood at £235m so the company still has some way to go before it is completely out of the woods.
The company’s overseas businesses have seen a significant increase in start up losses. These are said to be on account of the regional roll-out in Mexico, the opening of the Romanian business in April, the piloting of a new range of monthly home collected and monthly remotely collected loan products in Poland and preparatory work on potential new country openings in 2007 and 2008.
In total, start up losses will be around £15m, up from £4m in 2005.
The overall impression of this announcement is of a company that is trying to find its feet. It appears that it is still trying to develop a coherent business model and trying to get its operating metrics right. Naturally, all this is likely to lead to inconsistent profits, in other words a greater level of risk than some of its peers, particularly Cattles.
Cattles runs a very successful operation servicing sub-prime customers and while this market is profitable it is highly risky and investors need to demand additional returns in order to compensate – something that Provident looks hard-pressed to deliver.
The slowing economy will put financial services as a whole under pressure with shrinking margins and volumes - and higher levels of bad debts. Again Provident looks likely to be more badly affected in this department than its peers.
The share trades at 604p, on a prospective PE (2007 earnings) of 10.5x, within the sector range, with yield of 6.4%, above the average.
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