Blackfriar: Provident Financial deserves recognition for prudence

Step up Provident Financial, the Bradford-based doorstep lender which holds a banking licence through its Vanquis Bank credit card operation.

Technically a bank, although not yet a deposit-taker, it has increased profits year-on-year while the UK's big clearing banks have resorted to Government bail-outs and foreign support.

So the sell-off in Provident's shares on Monday, even as it reported yet another six months of growing earnings, looked a little harsh.

Provident's half year pre-tax profits ticked up by 1.7 per cent to 54m but shares fell seven per cent as earnings missed some analysts' expectations and its frank but cautious outlook on the UK economy spooked investors.

Short sellers, hoping to profit from a fall in Provident's share price, are also emerging from the woodwork. Hedge fund Millennium Partners yesterday disclosed a 0.25 per cent short position in the doorstep lender.

Provident's core home credit arm has had a tough time because of caution among borrowers and the tough jobs market.

Its half year profits were down 5.2 per cent at 49.3m and the bad debts ratio was up to 33.3 per cent against 31.2 per cent a year ago.

But Vanquis is now steaming ahead and grew pre-tax profits by 82 per cent to 9.1m.

Analysts at Collins Stewart downgraded Provident to sell, and warned "we fear management may reduce home credit lending in the second half and market forecasts may prove too high."

But Provident has shown remarkable consistency throughout the downturn, which Blackfriar believes the market has not given it credit for.

While rivals, most notably Batley-based Cattles, have fallen by the wayside, Provident has resisted the urge to make a huge loan grab.

Chief executive Peter Crook said investors are quite happy with the approach he's taking.

Instead, it has cherry-picked business, meaning customers grew by 7.3 per cent to 2.3 million by the end of June.

Even as analysts were calling for Provident to "become less risk averse", the group was tightening its lending criteria and shortening its loan book. Vanquis only accepted about one in five of its 600,000 applicants during the first six months of the year.

Meanwhile its army of 11,600 agents who collect repayments via door-to-door weekly visits puts it closer to its customers than any high street bank.

Mr Crook insists he's ready to step up growth when the time is right and the economy less rocky.

After all we've learnt, who would punish him for being cautious?

PETER Gyllenhammar's "miserly" bid for fibres group Chapelthorpe was stunning in its audacity.

The activist Swedish investor finally made an approach for the Bradford company he has stalked for four years, valuing it at just 5.1m

Mr Gyllenhammar plays the waiting game like few others. Eventually Chapelthorpe's second-biggest investor Hanover got fed up of sitting on a 24.8 per cent stake that was being held back by his stock overhang, and sold up.

That handed Mr Gyllenhammar 54.6 per cent of the company, and control over its direction.

His bid is perfectly legal and nothing less than Blackfriar would expect from one of the canniest investors in the Alternative Investment Market.

But his claim that 25p a share is "very helpful to all other shareholders" is debatable.

"If some investors are complaining (about 25p) – where were they when the shares traded at 10p not so long ago?" asked Mr Gyllenhammar.

But what about investors who have held on since late 2007 when its shares changed hands for 35p, or earlier?

They'll be thinking twice about investing in the low end of AIM.

Mr Gyllenhammar looks set to pick up Chapelthorpe for an absolute bargain price. But it leaves Blackfriar with a sour taste in the mouth.