Author Ben Leonard
Doorstep lender Provident Financial (PFG) lost almost two-thirds of their market value in a single day on the 22nd of August, in one of the worst share price drops in FTSE history. The doorstep lender was said to have been hit by a “quadruple whammy” last Tuesday, as they lost their chief executive, cancelled a dividend for shareholders and issued their second profit warning in two months.
Share price drop
The financial provider, whilst specialises in helping those with poor credit ratings, lost around £1.7bn was removed from their share price last week. Their shares dropped from 1,745.00 to 589.50 on Thursday, before rebounding to 892.00 this week.
However, shares for the doorstep lender showed signs of rebounding, after jumping 20 percent on the 25th of August. In total, Provident is said to have rebounded almost 70 percent in total, proving that there is likely to be hope for the doorstep lender yet.
Provident Financial currently stands at the top of the FTSE 100 risers. Shore Capital placed a £10 target on Provident shares, concluding that:
“While there remains significant uncertainty as to the near-term outlook, we believe that the group remains viable and that the share price fall is materially overdone. Our advice to investors is to take the plunge and double up, rather than quit.”
Changes to the home credit division
The Provident Financial Group grew rapidly in the period after the 2008 financial crisis, specialising in lending credit to people who could no longer secure it from banks.
However, in the recent years, the chief executive, Peter Crook, tried to embrace automation and technology by doing away with Provident’s 4,500 sales agents. Instead, he replaced them with 2,500 full-time “customer experience managers”, all connected to the head office via iPads.
The result of this new way of working was a fall in debt collection rates from 90 percent last year, to 57 percent this year. Provident had warned in June that the planned changes had resulted in agents leaving and a deterioration in sales and collection rates.
This has lead to them issuing a second profit warning notice in as many months. Provident previously revised their profit forecasts for their consumer credit division down to a profit of £60m two months ago but has since revised these forecasts down again. They are expected to make a loss of £120m in the current financial year.
Resignation of the Provident Financial CEO
As a result of the changes in the company, including the fall in debt collection rates and the staff turnover rate, the chief executive, Peter Crook, left the company with immediate effect last Tuesday.
However, it was announced that the previous head of the consumer credit arm would be returning to help steer the financial lender back to profit.
Chris Gillespie ran the business between 2007 and 2013, and Provident was quick to announce that he would be returning to the company this week. The news seemed to work, helping to bring life to Provident’s share price.
Provident said Mr Gillespie has been tasked with “re-establishing relationships with customers, bringing collections back to a normal level, and stabilising the operation of the business”.