Why Provident Financial’s rally could be short lived
At 502.6p shares in sub-prime lender Provident Financial (PFG) may be in recovery mode after it successfully fought off a hostile takeover by smaller rival Non-Standard Finance (NSF) but there are several reasons why investors should not get carried away.
Non-Standard is walking away having failed to secure the regulators’ approval for the deal. However, there remain question marks over Provident’s dividend, particularly given the costs incurred during the battle with its prospective acquirer.
The company could also face increasing impairments relating to bad debts in its Vanquis credit card division.
Broker Canaccord Genuity estimates a 1% increase in the Vanquis impairment rate would translate into an 8% hit for pre-tax profit and notes the company already warned of a higher than expected impairment rate for Vanquis earlier in 2019.
Woodford, which is selling off assets after dealing in its flagship income fund was suspended, owns 24.7% of the business.