Provident predicts another year of growth

The Bradford-based company said underlying pre-tax profits rose 11 per cent to £144.5m during 2010.

The group saw an improvement in the fourth quarter and said this has carried on through to this year.

In view of uncertainty over the job market, Provident said it will continue to apply tight underwriting standards to both its doorstep lending business and its credit card business Vanquis Bank.

Asked whether rising unemployment will affect the group, Provident’s chief executive Peter Crook said it was less of a concern for Provident than some companies.

“It’s very much youth unemployment that is the big problem area,” he said. “We don’t usually lend to single males on a low income. Our target for Vanquis Bank is 34 to 35-year-olds with an income up to £30,000.”

He added that the home credit loans business only approves one in four applications and just 18 per cent of people applying for a Vanquis credit card are accepted.

Provident said that the first quarter is the peak collections period in the home credit business and it is seeing sound collections and a continuation of year-on-year sales growth.

Average customer receivables rose 4.4 per cent to £1.05bn.

Mr Crook said that when the UK economy starts to recover he sees a good opportunity for the company to build on its leading position in the non-standard consumer lending market.

Asked when the economy is likely to pick up, he said: “I think we will see a slow growth through to recovery this year. I don’t subscribe to a double dip recession. We see a good year of profitable growth ahead. The market is saying it will be another double digit year.”

The group’s shares closed down five per cent last night, a fall of 53.5p to 979.5p. Analysts attributed the decrease to profit taking after a strong rally over the past three months.

Analyst Andrew Mitchell at Charles Stanley said: “A solid set of full year results is accompanied by a positive outlook albeit with some uncertainty about the prospects for unemployment and hence the backdrop for Vanquis in particular.

“The shares may be due a pause as they have risen 40 per cent since November but the dividend yield of 6.2 per cent limits any downside in our view.”

Mark Williamson, analyst at Peel Hunt, said: “The new year has started well for the group with improved demand seen in the final quarter continuing into the new year, delinquencies are stable and the group is benefiting from improved yields.

“The stock remains a ‘buy’ although some short term consolidation in the share price looks likely,” he added.

Provident said it would pay a maintained total dividend of 63.5p per share for the year.

Provident Financial was founded in 1880 to provide small cash loans to people on low incomes,

It now provides small, unsecured loans, typically for sums of between £100 and £500.

The company specialises in lending to people unable to borrow from high street banks.

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.

Customer numbers rose nearly six per cent in 2010 to 2.41 million, up from 2.28 million in 2009.

The group has banking headroom of £370m following additional funding of £128.5m raised from private placements since the year end, including £100m provided by M&G Investments.

A roadshow is underway to promote a second retail bond.

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.

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