Christmas loan rush gives lift to Provident's results

Shares in the Bradford-based company rose more than 10 per cent, a rise of 96p to 999p, after it reported an increase in demand despite the disruption caused by the heavy snow.

"I am pleased to report that the group had a strong finish to 2010 and expects to report results slightly ahead of market expectations," said chief executive Peter Crook.

The company, which specialises in lending to people unable to borrow from high street banks, said it expects to beat analysts forecasts of an annual pre-tax profit of 141m.

Provident has said that the Government spending cuts will have a minimal impact on the business, counteracting fears that it could be hit by public sector job losses and welfare reforms.

In November, it said it had seen a pick-up in home credit sales since September and yesterday it said this performance improved further through the peak trading weeks in the run-up to Christmas, despite the adverse weather conditions.

The group reported year-on-year sales growth of nine per cent in the fourth quarter, reflecting the focus on supplying credit to existing, good quality customers, using tight credit standards which reflect agents' views of customers' future circumstances.

The collections performance strengthened in the fourth quarter, having been stable during the first nine months of the year.

The focus on existing rather than new customers resulted in a slowdown in the rate of new customer growth.

Customer numbers rose around one per cent by the year end and receivables were also marginally ahead, in line with the group's planning assumptions for 2011.

The group said its credit card business Vanquis Bank generated a strong flow of new business in December

Customer numbers and average receivables for the year both showed year-on-year growth of around 25 per cent. Provident said the favourable delinquency trends experienced since the second quarter of the year continued throughout the fourth quarter.

"Vanquis Bank enters 2011 with a high quality receivables book and is positioned to deliver further strong growth," said Mr Crook.

As part of its ongoing programme to diversify funding, the group has entered into a committed 100m facility agreement with the Prudential/M&G Investments UK Companies Financing Fund to provide a 100m, 10-year term loan.

"We have made excellent progress in further diversifying our funding base and are delighted to have M&G Investments as a partner in the group's core long-term funding strategy," said Mr Crook.

He added that the year-end financial statements will reflect an exceptional write down of residual fixed assets of 2.5m following Home Credit's head office move to a new single purpose-built facility in Bradford.

Analysts at Shore Capital said: "This statement suggests that positive trends referred to in the previous update in November have continued for the remainder of the financial year. Also, the bad winter weather that hit the UK before Christmas does not seem to have disrupted sales."

The share increase will add further woes to short sellers of the stock, who bet on the shares going down this year as a result of customers being squeezed by Government cutbacks.

According to Data Explorers, just over 20 per cent of its shares are being shorted. Funds that have taken a short position on the stock include Odey Asset Management, Millennium Partners and AQR Capital Management.

Lending for all occasions

Provident provides small, unsecured loans, typically for sums of between 100 and 500.

Customers use home credit for a variety of purposes, from special events such as Christmas to coping with an unexpected bill.

Loans are delivered to the customer's home by an agent of the company who then calls every week to collect the repayments.

Provident's home credit businesses have over 11,700 agents in the UK, most of whom (71 per cent) are women.

Agents are paid commission based on what they collect, not what they lend, so it is in their interest to lend only as much as customers can afford to repay.