Provident Financial tanks as it issues profit warning and withdraws divi, CEO resigns

Shares in FTSE 100 subprime lender Provident Financial tanked on Tuesday as it issued its second profit warning in two months and announced the resignation of its chief executive and the withdrawal of its dividend as the rate of progress in the turnaround of the home credit business has been "too weak".

In an unscheduled trading update, the company said it now expects to make a pre-exceptional loss of between £80m and £120m as debt collection rates have fallen to 57% versus 90% in 2016, while sales were around £9m per week lower than the comparative weeks last year.

"The extent of this underperformance and the elongated period of time required to return the performance of the business to acceptable levels invalidates previous guidance," it said.

Back in June, the company said it expected the consumer credit division to generate a reduced pre-exceptional profit before tax of around £60m as it transitioned to a fully employed agent model.

Provident Financial also announced that Vanquis Bank was cooperating with an investigation by the FCA into the repayment option plan ancillary product. ROP currently contributes gross revenues, before impairment and costs, of approximately £70m per annum.

In light of the "substantial deterioration" in the trading performance of the home credit business and uncertainty created by the FCA's investigation at Vanquis, Provident said it was withdrawing the interim dividend declared in July and a full-year dividend is unlikely in order to protect its capital base.

The group is now undergoing a "thorough and rapid review" of home credit's performance to secure the turnaround of the business.

In addition, Provident said that Peter Crooke has decided to step down as chief executive with immediate effect, with Manjit Wolstenholme assuming the role of executive chairman.

Wolstenholme said: "I am very disappointed to have to announce the rapid deterioration in the outlook for the home credit business. Protecting the group's capital base through withdrawing the interim dividend and in all likelihood the full-year dividend is the appropriate response to maintain the highly valuable franchises of Vanquis Bank, Moneybarn and Satsuma. My immediate priority is to lead the turnaround of the home credit business."

Following a conference call earlier after the trading update, Goldman Sachs said management commented that it remains too early to give guidance around the home credit division's likely profitability in 2018.

"However the group indicated that once the business has returned to profitability its earnings capacity will be smaller (compared to prior years). In addition management commented that attempting to reverse the recent changes in the Home Credit operating model is not something that is currently being contemplated," GS said.

RBC Capital Markets said: "While Provident is down nearly 40% year-to-date, we expect ongoing substantial losses in the share price, and would not be buyers at any price. While the share correction was making us warm to Provident, this quadruple whammy (another profit warning, no dividend, FCA investigation and CEO departure) lead us to now believe that the shares are not investible until greater clarity is received, which may not be until next year at the earliest."

Shore Capital said: "Overall, this is without doubt a disaster for a company and management team which, up until recent times, we regarded extremely highly. We expect the shares to fall sharply and endure a period of increased volatility going forwards. With this in mind we suspend our recommendation (previously buy), while we further formulate our thoughts."

At 1255 BST, the shares were down 69% to 547p.