The share price plummeted more than 70% after it issued its second profit warning in a matter of months and announced CEO Peter Crook was to step down with immediate effect.
The firm, the UK’s largest sub-prime lender, also withdrew its interim dividend and scrapped a previously promised full year dividend.
It marks a major blow to Neil Woodford and Mark Barnett, two of the firm’s biggest shareholders.
Woodford responded on Tuesday afternoon to the sharp sell off by re-stating his long-term support for the firm.
“I believe it is critically important to maintain a disciplined, fundamentally-based perspective in my investment analysis. With that in mind, I believe Provident Financial shares started the day undervalued, and have become even more so as a result of the market’s reaction to today’s news,” he said.
“I am hugely disappointed by what has happened to the consumer credit division but I continue to believe that it will, ultimately get back on track. This business has been around for more than a century and I believe it will be around for many decades to come.”
He added that if the consumer credit division stabilised, a conservative estimate for pre-tax profit in 2019 would stand at around £300m.
Woodford’s flagship equity income fund had a 4.59% holding as of 30 June this year, the fund’s fourth largest holding and it is the sixth largest holding in Barnett’s Invesco UK Equity Income Fund at 2.8%.
The losses also hit Jupiter’s European Opportunities Trust managed by Alexander Darwell. Provident Financial makes up 5.7% of the portfolio.
Provident dropped its pre-exceptional profit expectation to about £60m in June and in a trading statement published at 7am Tuesday, revealed progress in its employee shake-up was “too weak” and the business performance and sales showed “substantial underperformance”.
Losses to the business are expected to be in the range of £80m to £120m, the firm added.
It has also been hit by an FCA investigation into its Vanquis Bank arm, with the suspension of sales of its Repayment Option Plan product marking a £70m a year loss for the firm.
7IM’s senior investment manager Peter Sleep said it remained to be seen how well the business could recover as it moved from a self-employed, commissioned structure to employing full time staff.
“Only time will tell how well it will go,” he said.
“The business was a good one and there are still units within Provident that are doing well, but it remains to be seen if the rest of the business can hold up.”
It marks one of the largest single market falls for a FTSE 100 company. “I have not seen anything like this before,” Sleep added.
Manjit Wolstenholme has taken over following Crook’s departure.
In a statement, she said: “I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business.
“Protecting the group’s capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma.
“My immediate priority is to lead the turnaround of the home credit business.”
