Blackfriar: Provident Financial proves spivs and speculators wrong

Cable, who is now Business Secretary in the coalition Government, labelled the hedge funds which profited from short selling as "masters of the universe", echoing the comments made by Scotland's first minister, Alex Salmond, who called short sellers a "bunch of spivs and speculators".

Two years on, you might have thought the furore had died down.

But anyone keeping an eye on Bradford-based doorstep credit lender Provident Financial's stock over the past few months would have seen a resurgence in short selling. The company's shares have been so short sold that the share price has dropped from a price of 928p at the start of the year to 775p on Tuesday night.

The spivs and speculators have been spreading rumours that Provident would be hammered by the Government's spending cuts, public sector job losses and welfare reform.

Plus there have been whispers that if Provident's former arch rival, Batley-based Cattles, could go quite so spectacularly belly-up, it was only a matter of time before its Yorkshire peer also came a cropper.

But yesterday Provident hit back with a robust trading statement, saying that the Government spending cuts will have a minimal impact on the business.

Provident said the Government's decision to cap family benefits at around 500 per week would affect less than one per cent of its customers.

Equally, the decision to scrap child benefits for wealthy families won't have an impact.

In fact the group, which offers small, short-term loans to people who would have trouble borrowing from mainstream lenders, is seeing confidence gradually return.

Sales are up seven per cent over the past 12 weeks and the group is looking forward to a robust Christmas.

Provident could actually see some benefit as the people who lose their public sector jobs find themselves shunned by the high street banks.

If these people are forced to take temporary or part-time work, most banks wouldn't want to lend to them, but it is this sector of society that makes up the majority of Provident's customers.

Provident, which specialises in loans to people who borrow under 500 and pay it back in weekly instalments, generally lends money to people who want to pay their rent, buy food for their families, see their kids properly clothed or pay their energy bills – all areas that won't be hit by the hike in VAT.

Following yesterday's comprehensive statement, the group's shares rose 8.6 per cent, an increase of 66.50p to 841.50p.

Analysts welcomed the news.

A note from Evolution Securities, retaining its 'buy' recommendation on the shares, said: "We continue to feel impairment and funding fears are overdone and that as Provident delivers more detail, so it could retrace some of the ground lost recently."

Analysts at JP Morgan Cazenove added: "The comment on current trading is upbeat, we believe, with current sales running seven per cent above last year's levels.

"Collections performance remains stable, implying that there has been no deterioration in credit quality.

"The weakness of the share price in the recent past has been the result of a number of questions being raised about the company's business model and medium term prospects, we believe.

"Today's presentation is an opportunity for the company to lay to rest some of the more vocal concerns."

More positive notes are expected this morning as analysts digest what they learned yesterday at Provident's investor and analyst event.

One of the few bears on the stock, Collins Stewart noted: "We observe that the trading update made no comment on Provident Financial's Irish branch.

"We are surprised at this omission given the importance placed by management on its Irish experience."

The company's response was that its Irish business is not core to operations as it accounts for less than five per cent of the overall business.

The dramatic rise in Provident's share price is a punch on the nose to the spivs and speculators who doubted the company's management team, one of the most experienced in the business.

Provident is a well-run Yorkshire-based business that has fallen prey to some inaccurate rumours circulating in the West End of London. Their aim was to make a quick buck on the back of uninformed speculation.

But Provident has hit back with all guns blazing. Cable would be proud.

[email protected]