Provident beats Brexit worries

The Bradford-based FTSE 100 company, which provides credit cards and loans to 2.4 million customers who are unable to meet the lending criteria of mainstream banks, said pre-tax profit rose 14 percent to £334.1m in the year to December 31.​

​The group said it has proven resilient during previous economic downturns due to ​its​ specialist business models which are tailored to serving non-standard customers.

P​rovident’s chief executive Peter Crook said the group’s Vanquis Bank ​division ​demonstrated during the last downturn that it is considerably less sensitive to changes in the employment market than mainstream card issuers​.

​He said that​ Vanquis Bank has maintained tight credit standards since 2009 and maintains strict discipline over ​its credit cards.

“We’ve kept credit very tight,” he said.

“A lot of the growth that the Bank of England is concerned about is due to mainstream lenders having looser credit.

“If we see unemployment rise, we are confident about our book. We don’t see a big recession and lots of jobs being lost. We’re not expecting a meltdown.”

He added that inflation has only been an issue for the home collected credit business.

“We last saw this in 2011/2012. The quality of our loan book is far better now,” he said.

Provident said that Vanquis had a strong year and the group has seen improvements coming through.

​“The fourth quarter was very strong for Vanquis with new customers joining the business,” said Mr Crook.

“We are starting to do some instalment lending. Customers are using other providers when they should be coming to us. There are existing customer opportunities.”

The group announced plans to switch from self-employed agents, who generally work part time, to full time employees.

“The service to customers should be materially better. At the moment if they want to see someone at 2pm on Wednesday, the agent probably can’t do it.”

Under the new system customers can book to see an agent at a time to suit them.

​Analyst Gary Greenwood at Shore Capital said: “We expect to trim our adjusted pre-tax profit estimates in 2017 and 2018 by around 4 per cent (to £350m) and 3 per cent (to £390m) respectively, to reflect higher expected new business strain in Vanquis Bank.

“However, we anticipate the benefits of the additional investment will result in higher-than-expected profitability in the longer term.

“While estimate downgrades are never welcome, especially for a company that trades on a growth multiple, we believe these are being driven for the right reasons, with management willing to sacrifice short term performance in bid to deliver better long-term growth. Consequently, we re-iterate our positive stance and remain happy recommending investors pick up stock below the 3,000p level in what, we view to be, a very high quality business.”

Mr Crook said the group is investing more heavily in Vanquis Bank and new accounts tend to lose money in their first year.

“Vanquis Bank will make a bit less money, but it will be for very good reasons,” he said.

P​rovident raised its ​total dividend by a better than expected 12.1​ per cent​ to 134.6p​.

Analyst Justin Bates at Liberum said: “The dividend was 3 per cent ahead of consensus. The company’s outlook is bullish, indicating a good start to 2017, although Provident signals higher costs through 2017.”