The bad news keeps on coming for the Neil Woodford-backed consumer credit firm, which confirmed the UK watchdog was looking into another one of its consumer credit businesses in a matter of months.
The regulator has also been examining its subsidiary Vanquis Bank regarding concerns over the fairness of its credit card repayment option plan (ROP) product, which generated gross revenues of £70m for the firm.
Its shares fell close to 20% shortly after trading commenced on Tuesday, sliding from £8.80 to a three-month low of £7.18.
A string of successive profit warnings and senior management shake-ups have already wiped millions of pounds off Provident Financial’s market cap this year, leading to its expulsion from the FTSE 100. Last month, the firm’s executive chairman Manjit Wolstenholme, who had been helping the firm with the recovery of its floundering home credit business, died suddenly.
The series of bumps in the road for the sub-prime lender have made life painful for majority shareholders Invesco Perpetual’s Mark Barnett and Woodford, which have seen redemptions from their equity income funds this year.
At the time of its second profit warning, Woodford defended his circa 22% stake in the sub-prime lender, saying he was “hugely disappointed” by the performance consumer credit division but predicting it would “ultimately get back on track”.
Though the doorstep lender’s shares have recovered some of their value since tanking after the resignation of chief executive Peter Crook in August, they are now down more than 73% compared with one year ago.
Analysts from JP Morgan speculate that Moneybarn has a valuation around 263p. The car finance division accounted for 10% of the firm’s profits in 2016, but the team argued it will make up a larger share of profits in the future, following the setbacks of its home credit arm.
“Today’s news clearly marks further disappointment on the back of the issues over the summer in the home credit business,” it said in a note.
“We have a neutral recommendation on Provident Financial reflecting the heightened uncertainty relating to pending changes within the Home Credit operating model. The disruption to the business is significant with management guiding towards a loss of £80-120m in FY17. Vanquis, too, faces uncertainty given the FCA’s investigation into the ROP product.”
In a statement to shareholders, Provident Financial said that the FCA has “continued to discuss certain processes with Moneybarn” ever since the unit was granted authorisation to conduct consumer credit activities on 3 June 2016, adding that “Moneybarn has made a number of process improvements, including to the way it deals with future loan terminations”.
“The company will work collaboratively with the FCA to investigate the remaining concerns and resolve any outstanding related issues as soon as practicable,” it said.
The doorstep lender will be releasing a post-closing trading update in mid-January, further to its final results.
The FCA declined to comment.
