Provident shares rocked by weak demand at home arm

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CREDIT lender Provident Financial reported weak demand for its home collection division, sending its shares down sharply.

The Bradford-based group told shareholders at its annual general meeting that household incomes are being hit by the persistent rise in day-to-day living costs and, in particular, higher winter gas and electricity bills. Bad weather also dented sales during the Easter trading weeks.

As a result, the group said customer confidence is at very low levels and demand for credit was weak during the first quarter of the year as both customers and agents became more cautious.

The group also reported an increasing reluctance among existing customers to take out higher value, longer term loans.

Provident said it has kept tight credit standards in place and customer numbers at the end of March were down two per cent on the previous year.

Receivables fell three per cent reflecting the weaker demand and a shortening of the loan book.

One consequence of the fall in demand is existing customers who don’t want more credit have less incentive to bring their accounts up to date.

This has resulted in a deterioration in arrears and the impairment to revenue ratio increased to 35 per cent at the end of the first quarter, up from 33 per cent in 2012.

The group said home credit’s first quarter trading result was weaker than expected and down on last year.

Chairman John van Kuffeler said that the business is being tightly managed on the basis that the trading environment is unlikely to get better in the near term.

Amid these tougher trading conditions, Provident said its focus will be on field collections, arrears management and a tight control of costs, so the group is well prepared for the peak pre-Christmas period.

The group’s shares closed down 4.93 per cent at 1600p on the news.

Home collection’s performance was in stark contrast to the group’s Vanquis credit card business which is outperforming expectations.

Mr van Kuffeler said Vanquis Bank is seeing strong demand from the under-served non-standard UK credit card market and the division generated strong growth and margins through the first quarter of the year. Vanquis grew its customer base from 899,000 at the start of the year to 952,000 at the end of March and it saw a 42 per cent rise in first quarter receivables.

Vanquis customers are typically in more regular employment than home credit customers.

Analysts at Shore Capital described the results as “a mixed bag” and moved its guidance to sell at 1650p.