15th Jan 2019 11:42
LONDON (Alliance News) - Provident Financial PLC shares slumped Tuesday as the firm warned annual profit will be towards the lower end of market expectations, despite its Consumer Credit and Money units performing well.
Shares in the subprime lender were trading 18% lower at 528 pence each Tuesday, the worst performer in the FTSE 250.
Shares are 75% lower than three years ago, with the biggest drop occurring August 2017.
Currently, the market forecasts the lender's pretax profit to be between GBP151 million and GBP166 million in 2018. A year ago, the company reported a GBP123.0 million pretax loss.
Moneybarn - a car financing business - has performed "well", said Provident, with its Consumer Credit division performing in line with management expectations.
Vanquis Bank, Provident's credit card lending business, achieved customer and receivables growth in the period but suffered "higher than expected" impairments.
Provident expects to report exceptional costs of GBP55 million in 2018, with GBP37 million booked in the first half.
The costs represent the implementation of its home credit recovery plan, including intangible and tangible asset write offs, redundancy and consultancy costs, non-cash pension charges, and a premium paid on the redemption of senior bonds.
Chief Executive Malcolm Le May said: "I am very pleased with the progress we have made in 2018 on delivering against the operational objectives we set ourselves at the start of the year."
Provident's Consumer Credit division was fully authorised by the UK Financial Conduct Authority in November, following the roll-out of a new operating model. Provident said the new operations provide "improved oversight" and "control over field activity and customer outcomes".
The unit's recruitment of new customers in home credit was "marginally" above expectations during the peak fourth quarter period.
Satsuma, Provident's online instalment loan business, delivered "strong" growth in the fourth quarter with new business and further lending volumes showing a year-on-year increase of about 38%.
As a result, the Consumer Credit division's active customer numbers and receivables ended the year at 560,000 and about GBP290 million, respectively, marginally ahead of management expectations.
The unit's collections performance of credit, originated under the new operating model, remains "broadly" in line with the levels achieved prior to the change of operating model.
Provident noted, however, that collections originated prior to the model change in 2017 remain "significantly lower" than historic levels and have "not shown any improvement, consistent with the experience reported in the second and third quarters of the year".
Provident's Vanquis Bank saw new account bookings in the fourth quarter of 76,000, which is 17,000 lower than the same period in 2017. Total new account bookings for 2018 were 366,000, which is 71,000 lower than 2017.
Provident said this reflects the impact of tighter underwriting, the end of the Argos contract in early 2018, and a "temporary reduction" in a marketing programme in the fourth quarter as it focused on implementing a new underwriting platform, which started in November.
Vanquis Bank ended the year with 1.8 million customers, a year-on-year growth of 3.1%. Provident said the growth in customer numbers and credit line increases combined saw receivables grow about 5% during the year.
Vanquis Bank suffered "some pressure" delinquency and arrears metrics in the second half of the year. This primarily reflects the continued increase in the use of payment arrangements relating to enhanced forbearance procedures.
The refund programme for repayment option plan customers is "on-track to be substantially completed in early 2019".
Provident said over 1 million customers have now been refunded, representing about GBP160 million of cash refunds and balance reductions. The level of repayment option plan complaints has remained "lower than expected".
Moneybarn's new business volumes showed year-on-year growth of 21% in the fourth quarter with customer numbers ending the year at 62,000, a year-on-year growth of about 24%. Provident said receivables showed a similar level of growth.
The unit's default rates and arrears levels remained "stable" in the second half following the "initial tightening" of underwriting in the second quarter of 2017 on higher risk categories of business and the removal of a tier of lower value business in the second quarter of 2018.
Moneybarn's annualised risk-adjusted margin has shown further improvement during the final quarter of the year.
Provident said Moneybarn continues to assist the FCA in its ongoing investigation into affordability, forbearance, and termination options and it expects the investigation to end in the first half of 2019.
Provident Financial expects to declare a "normal" dividend in respect of 2018. In 2017 the firm withdrew its 43.2p dividend during the year in order to retain liquidity, following the significant deterioration in home credit trading and the FCA investigation into Vanquis.
The company will post its annual results on February 27.
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