Slump: Manjit Wolstenholme is trying to solve the firm’s problems
Money lender Provident Financial is in a mess.
The shares were more than 3250p in May. Today, they are 916p. Two profits warnings have been issued, the dividend has been cancelled and the Financial Conduct Authority is investigating a credit card product from subsidiary Vanquis Bank.
Chief executive Peter Crook has resigned and the company’s core home credit arm could lose up to £120 million this year.
Only three months ago, brokers were forecasting 2017 profits of £120 million from that division.
The shares see-sawed last week. Having slumped 66 per cent on Tuesday, after the second warning, they then rose 56 per cent to finish the week at 916p, as supporters banked on the firm staging a swift recovery.
But Provident has serious detractors too, and even its own broker, JP Morgan Cazenove, suggests the home credit division is now worthless.
The firm lends money at very high interest rates to almost 800,000 people who find it hard to borrow from banks.
Having used part-time agents in the past to lend and collect money, it is trying to move to full-time employees, using the latest technology that allows customers to set the appointments online.
But the move has been disastrous, the technology has not worked and collection rates have crashed.
Chairwoman Manjit Wolstenholme is trying to rectify the problem, but it is unclear how long that will take. Meanwhile, customers may well walk if they cannot secure loans when they need them.
Add in the FCA investigation, which has been going on for some time but came to light only last week, and Provident’s future looks highly uncertain.
Midas verdict: In May Provident was considered a reasonably solid, FTSE 100 index, income stock. Today there is no income, no solidity and the group could be ousted from the Footsie.
For most investors, the shares are best avoided. Some people may find the group’s strategy distasteful – charging huge interest to those who can least afford it.
But even for those without such qualms, there may well be further destabilising revelations in the weeks ahead.